Bank of Korea Sees No Problem With Fannie Investments

By William Sim

Aug. 21 (Bloomberg) -- The Bank of Korea sees no problem in recovering its principal investments in senior bonds issued by Fannie Mae and Freddie Mac.

There is ``no chance'' the U.S. government will buy back the bonds at a discount if it decides to bail out the mortgage- finance companies, the central bank said in a statement today.

U.S. Treasury Secretary Henry Paulson received authority from Congress last month to pump unlimited amounts of capital into Fannie and Freddie in an emergency after the debt yields rose and their shares tumbled 90 percent from a year earlier.

The yields on Fannie and Freddie's senior debt fell after their executives met with Treasury officials on Aug. 20, on expectations recovery of the principal will be ``more certain'' if the bailout plan takes shape, the Bank of Korea said.

Shares in Fannie and Freddie, government-chartered companies that together account for almost half the $12 trillion U.S. mortgage market, reached their lowest levels in two decades yesterday. Their preferred shares have lost about one-third of their value this week.

Central banks pared purchases of new Fannie and Freddie debt by more than a quarter in the past two weeks.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.