Fannie Mae, Freddie Mac get extra Treasury help

14 July 2008

Government-chartered mortgage firms Fannie Mae and Freddie Mac are to be bolstered by joint assistance from the Treasury and the Federal Reserve.

Henry Paulson, Treasury Secretary, indicated that he would seek authority from Congress to lend to or buy stock in the lenders for as high an amount as was necessary.

Effectively, this guarantees debts held by Fannie Mae and Freddie Mac - firms which, though set up through public money, are now in the hands of private shareholders.

The two firms - which jointly own or guarantee $5 trillion, around half the total value of US mortgage debt - have been the subject of Wall Street rumors over the past week, which suggested that they might be facing liquidity concerns and could be in danger of collapsing.

As a result, shares in the firms dropped by 40 per cent over the five days.

"[The lenders'] continued strength is important to maintaining confidence and stability in our financial system and our financial markets," Mr Paulson said.

Government guarantees of Fannie Mae and Freddie Mac's debt now seem set to become law later this week.

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