2nd UPDATE: Treasury Boosts Funds For Fannie,Freddie To $200 Billion Each
18 Februar 2009 - 5:27PM
Dow Jones News
The U.S. Treasury Department on Wednesday announced it's
increasing its funding commitment to Fannie Mae (FNM) and Freddie
Mac (FRE) to $200 billion each as part of a broad plan to ensure
confidence in the two institutions and boost the housing
market.
Specifically, Treasury is amending the Preferred Stock Purchase
Agreements it has with the government-sponsored enterprises to $200
billion each from the original level of $100 billion each.
Treasury made clear that it is boosting the funding by using new
powers provided by the Housing and Economic Recovery Act - not the
controversial, $700 billion financial sector rescue Congress
authorized last year. The housing law, which was enacted last
summer, included a dramatic rescue plan for Fannie and Freddie amid
growing market concerns about the firms' solvency and capital.
Among other things, the plan extended the government's line of
credit with the GSE's and enabled Treasury to take an equity stake
in the firms.
Treasury said it is increasing the GSE's funding to provide
assurance to market participants.
"The increased funding will provide forward-looking confidence
in the mortgage market and enable Fannie Mae and Freddie Mac to
carry out ambitious efforts to ensure mortgage affordability for
responsible homeowners," said Treasury Secretary Timothy Geithner
in a statement.
Additionally, Treasury said it will increase the size of the
GSEs' retained mortgage portfolios allowed under the stock purchase
agreements by $50 billion to $900 billion, along with corresponding
increases in the allowable debt outstanding.
Geithner said the funding boost "is not intended to indicate any
estimate of possible losses with respect to the companies."
Instead, the action is meant to prove to the markets that the
Treasury stands firmly behind the GSEs' ability to support housing
finance, even in the midst of market difficulties, the secretary
said.
Treasury noted that neither firm is near the current $100
billion limit for funding from Treasury under the stock
agreements.
Based on preliminary disclosures from the last quarter of 2008,
total funding provided to Freddie could approach $50 billion and
total funding for Fannie could approach $16 billion, it said.
The GSE announcement is part of the Obama administration's broad
homeownership affordability plan designed to help up to 9 million
families restructure or refinance their mortgages to avoid
foreclosure.
The plan also includes a $75 billion stability initiative to
help homeowners who make reasonable monthly mortgage payments to
stay in their homes. Under the program, a lender ideally would help
bring down interest rates so a borrower's payments are no more than
38% of his or her income. The government would then match further
reductions in interest payments in order to bring that ratio down
to 31%.
-By Maya Jackson Randall and Jeff Bater, Dow Jones Newswires;
202-862-9249