US throws mortgage giants lifeline

Government to extend more credit to firms which back half of all US home loans.

Fannie Mae and Freddie Mac together own or guarantee half of all US home loans [AFP]
Fannie Mae and Freddie Mac together own or guarantee half of all US home loans [AFP]

Such moves will require congressional approval and Dana Perino, the White House press secretary, said on Sunday that it was “crucial that congress quickly works to enact this legislation”.

Fannie and Freddie were created by the government to provide more Americans the chance to own a home by adding to the available cash banks can loan customers.

If one or both of the companies were to fail, it could wreak havoc on the already fragile financial system and the crippled housing market and spill over into the national economy.

Central role

Henry Paulson, the US treasury secretary, stressed the key roles of the companies in the US housing market.

“Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies,” Paulson said on Sunday.

“Their support for the housing market is particularly important as we work through the current housing correction.”

The department, the Fed and other regulators worked over the weekend after investor fears about the companies’ finances sent their shares plummeting last week.

The announcement marked the latest move by the government to bolster confidence in the mortgage companies.

A critical test of confidence will come on Monday morning, when Freddie Mac is set to auction a combined $3bn in three- and six-month securities in an attempt to heal shattered investor confidence.

Source: Al Jazeera, News Agencies


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