Miami-Dade County calm in face of Fannie Mae/Freddie Mac hubbub
By Risa Polansky
With mortgage powerhouses Fannie Mae and Freddie Mac posting multi-billion-dollar losses, some investors are alarmed.
Miami-Dade County isn't.
"We have significant dollars in Fannie and Freddie, but that doesn't mean we're concerned," said county Finance Director Rachel Baum.
Miami-Dade's investment portfolio in June reached a total of more than $4.47 billion, including accrued interest, according to a report by adviser First Southwest Asset Management.
About 20.8% is invested in Fannie Mae, and only .55% in Freddie Mac.
The quasi-public agencies deal only in the housing market, meaning that today's downturn and credit crunch have taken a toll.
Combined, Fannie and Freddie have lost about $11 billion during the past three quarters — but the agencies own or guarantee $5.2 trillion in high-quality mortgage loans, said Scott McIntyre, senior vice president of the asset management firm.
"It's important, I think, to keep it in perspective," he said, noting that the senior debt of both Fannie and Freddie is still AAA rated, and that's where the county's money is invested.
The Federal Housing and Economic Recovery Act, signed into law by President Bush last month, helps solidify the federal government's commitment to keeping the agencies afloat by extending them an unlimited line of credit, he added.
"We feel very comfortable with this debt at this time."
As does Ms. Baum.
"These are sound investments," she said. "The federal government is standing by these two agencies."
A full report on the county's investments is in the works and should be complete by week's end, she said.
Miami Commissioner Tomás Regalado said he plans to request the same from city staff, wary of Miami's $112 million investments in Fannie Mae and Freddie Mac.
The city is keeping a close eye on its portfolio, Chief Financial Officer Larry Spring said, and has stopped buying debt securities from the two companies.
First Southwest's report provided a snapshot of the county's investments.
This fiscal year to date, Miami-Dade's portfolio has earned more than $121.8 million in interest, the report says. The fiscal year ends Sept. 30.
Earnings are low, Mr. McIntyre acknowledged: the investments earned $376,688 less in interest in June than May, and unrealized gains fell from about $5.1 million in May to $3.4 million in June.
Still, he told the county's Investment Advisory Committee Tuesday, "You're doing well. This portfolio is well positioned."
Miami-Dade is "beating all its benchmarks," he said, referring to the county's self-imposed investment limits.
The county is allowed to invest 50% of its portfolio in commercial paper. It's only investing about 29% there.
Despite a 50% threshold for investment in Small Business Administration/investment pools, the county has no money there.
Likewise, nothing is invested in money market funds despite a 30% limit.
The portfolio is short and diversified, Mr. McIntyre said, two attributes he's stressing as his clients navigate tumultuous markets.
"They've always been conservative," he said of the county. "Their conservativeness has paid off."
Considering today's economic rollercoaster, "there have been opportunities for local governments to make mistakes," he said. "And they haven't."