FYI | Jul 16 2007
By Greg Peel
The Bush Administration is urging China’s central bank to buy more government-backed mortgage bonds, Bloomberg reports, in an effort to sustain financing for US home loans in the midst of the subprime mortgage crisis. The Secretary of the US Department of Housing and Urban Development is in Beijing to persuade the PBoC to buy more securities from Ginnie Mae – a seller of US mortgage products which, unlike Fannie Mae and Freddie Mac, are government guaranteed. China has delved into Ginnie Mae securities previously, but not in any significant fashion.
China has, however, increased its foray into mortgage products in general over the past three years. Investments totalled US$107.5 billion at June 2006, up from US$3 billion three years earlier. The HUD hopes to direct China’s recycling of US$1.33 trillion of foreign reserves into its Ginnie Mae products ahead of others, as they offer the government guarantee for the same credit rating. China has established a US$200 billion fund to explore investments offering higher returns than the ubiquitous US Treasury market.
It will be interesting to see how the Chinese government responds to this visit. The Secretary is also keen to meet with China’s commercial banks and offer them the golden opportunity to invest in the US housing crisis.
