WASHINGTON – The Federal Reserve and Treasury announced plans yesterday to bolster Fannie Mae and Freddie Mac, in the face of an investor rout last week that sent shares in the two secondary mortgage market giants plummeting to three-decade lows.
The Fed said it has granted the two companies access to its discount window for low-interest loans, while the Treasury’s proposed plans, which must be approved by Congress, would increase the guaranteed line of credit for the two mortgage giants as well as open the possibility of an equity investment by the federal government.
The two moves are aimed at bolstering investor confidence in the two companies, which have wracked up $11 billion of losses over the past year, with more loses expected in the coming weeks and months. A crucial test of investor confidence will come this morning when Freddie is scheduled to auction $3 billion in three- and six-month securities.
The two companies are critical to the credit union movement, which not only sells more than half of all its residential loans to one of the two, but also has more than $75 billion in mortgage backed securities issued by either Fannie or Freddie.
"GSEs play a critical role in allowing credit unions to obtain the capital necessary to create new mortgages for their member-owners. NAFCU and the credit union community have a vital interest in the preservation of a viable secondary mortgage market," said NAFCU President Fred Becker said last night. "We call on Congress to give this proposal the immediate attention it merits."
Treasury Secretary Henry Paulson said Sunday he hopes to attach the Fannie and Freddie provisions to a housing rescue bill passed Friday by the Senate which must now be reviewed by the House. House leaders said yesterday they expect the provisions to be attached to the bill, which they hope to get to the President’s desk by the end of the week.
The housing bill would create a new regulator for the two mortgage companies, set new capital standards and require them to pay a portion of their annual revenues into an affordable housing fund, among other things.
Fannie Mae shares plunged 45% last week to close at $10.25 on Friday, and are down 74% since the beginning of the year. Freddie Mac’s shares fell 47% last week to just $7.75, and are down 77% so far this year.
