Cap lifted for Fannie, Freddie aid

Friday 25th of December 2009 06:11:03 PM


Cap lifted for Fannie, Freddie aid




The US government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat.Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government's estimate this summer of $170 billion over 10 years.

Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.Under the formula, financial support would increase according to how much each firm loses in a quarter.The cap in place at the end of 2012 would apply thereafter.

By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government's commitments.But the timing of the announcement on a traditionally slow news day raised eyebrows.

"The companies are nowhere close to using the $400 billion they had before, so why do this now?" said Bert Ely, a banking consultant in Alexandria, Va."It's possible we may see some horrendous numbers for the fourth quarter and, thus 2009, and Treasury wants to calm the markets."

The biggest headwind facing the housing recovery has been the rise in foreclosures as unemployment remains high.The two companies, facing mounting losses from mortgage defaults, were taken over by the government in September 2008.

Treasury officials will provide an updated estimate for Fannie and Freddie losses in February when President Barack Obama sends his 2011 budget to Congress.Though the administration has yet to disclose its long-term plans for the two companies, they are unlikely to return to their former power and influence.

The news followed an announcement Thursday that the CEOs of Fannie and Freddie could get paid as much as $6 million for 2009, despite the companies' dismal performances this year.Fannie's CEO, Michael Williams, and Freddie CEO Charles "Ed" Haldeman Jr.each will receive $900,000 in salary, $3.1 million in deferred payments next year and another $2 million if they meet certain performance goals.

Associated Press
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