WASHINGTON, DC - Troubled US mortgage giant Freddie Mac planned Monday to sell off three billion dollars in securities in a test of investor reaction to a bold rescue plan by the US Treasury. Treasury Secretary Henry Paulson in a dramatic move on Sunday unveiled measures to bolster the two main US housing companies Fannie Mae and Freddie Mac, which were also given Federal Reserve oversight and bigger credit lines. The measures proposed by Paulson now require Congressional approval.
The two firms own or guarantee almost half of all US home loans, or about five trillion dollars (three trillion euros) of debt, and have been in crisis amid the worst housing downturn in the United States in a quarter century. Paulson said Sunday that the "central role" the two play in real estate financing meant they should continue to respond to shareholders and should not be taken over by the federal government. To protect them from liquidity problems, Paulson said the two organizations would get a bigger credit line "temporarily" but gave no details on the amount or terms.
The Treasury Department will get temporary authority to buy their shares should that be necessary, Paulson said. It was not immediately clear whether such purchases would be carried out on the market to support Fannie Mae and Freddie Mac's share values or through a capital injection, which has not been possible thus far due to their weak share values.
Freddie Mac is scheduled to sell three billion dollars in short-term notes on Monday. The Board of Governors of the Federal Reserve System meanwhile announced it had granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac.
Any lending would be at the primary credit rate and collateralized by US government and federal agency securities. The authorization is meant to supplement the Treasury's lending authority, officials said. "We are grateful for the leadership of Secretary Paulson and (Fed) Chairman (Ben) Bernanke," Fannie Mae CEO and president Daniel Mudd said. He urged Congress to ensure "swift passage of the new legislative proposals, as well as the important initiatives underway to assist homeowners and help restore stability to the housing market."
"We continue to hold more than adequate capital reserves and maintain access to liquidity from the capital markets," Mudd said. "Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market. "We will continue to do our part to provide liquidity, stability and affordability to the housing market now and in the future."
White House press secretary Dana Perino said Sunday that "Fannie Mae and Freddie Mac play an important role in our housing finance system, and they should continue to play this role in their current forms as shareholder-owned companies."
"This evening, after working with the companies, the Federal Reserve, and other regulators, Treasury Secretary Paulson outlined a plan that we believe will help add stability during this period. President Bush directed Secretary Paulson to immediately work with Congress to act on this plan," she added in a statement. "It is crucial that Congress quickly work to enact this legislation as a complete package along with the strong oversight reform legislation recently passed in the Senate."
Democratic presidential candidate Barack Obama offered a cautious reaction to the rescue plan, saying any actions taken with respect to Fannie Mae and Freddie Mac should be guided by two basic principles.
"First, we must maintain a steady flow of capital to the housing market to make sure that home ownership remains attainable and affordable for American families," Obama said in a statement. "Second, any mea
Source: AllHeadlineNews.com