WASHINGTON — On the same day that Fannie Mae and Freddie Mac announced multi-million dollar compensation packages for its chief executives, the Treasury Department expanded federal support of the government-sponsored enterprises.

The $200 billion credit lines the Treasury has made available to each company since they were seized by the government in September 2008 will be allowed to increase "as necessary" over the next three years to ensure that Fannie and Freddie retain a positive net worth. The lines were originally set to expire at yearend.

Neither GSE is close to reaching the $200 billion limit. Fannie has borrowed $60 billion and Freddie has borrowed $51 billion.

The Treasury does not expect it will have to shovel amounts beyond the $200 billion into Fannie and Freddie. In a Dec. 24 press release, it said the move is designed to "leave no uncertainty about the Treasury's commitment to support these firms."

In a separate press release Thursday, Edward DeMarco, the acting director of the Federal Housing Finance Agency, said the Treasury's changes "reaffirm the government's commitment to stability in the mortgage market."

"The increase should provide additional assurances to investors in enterprise debt and mortgage-backed securities that the government backstop announced in September 2008 remains capable of offering the full protection promised," he said.

The announcement comes at an important moment in the government's response to the financial crisis. A Treasury program that is expected to purchase $220 billion worth of mortgage-backed securities guaranteed by Fannie and Freddie will expire at yearend. Meanwhile, the Federal Reserve Board is moving forward with plans to curtail its purchases of debt and MBS from the GSEs by March 31.

Policymakers are stepping back from the GSEs with great caution to avoid another slip in housing markets that could revive the market turmoil. Still, it is expected that the Fed's pullback will cause mortgage rates to rise at least slightly next year.

Fannie and Freddie won other breaks from the Treasury as well. When the Bush administration announced the conservatorship, it said the GSEs would begin paying fees for borrowing from the Treasury on March 31. Now, the Treasury said the GSEs will not have to pay until Dec. 31, 2010.

Meanwhile, the Treasury effectively moved the goalposts for reducing the mortgage portfolios at the GSEs. Fannie and Freddie were initially supposed to shrink their portfolios by 10% each year from their current position beginning in 2010.

The Treasury said Thursday that the reductions would be targeted from $900 billion. Since the portfolios at both GSEs currently rest at roughly $770 billion, the Treasury's move means they will not have to shrink anytime soon.

The added flexibility on the portfolios is intended to avoid a fire sale of mortgage assets as the Fed begins to sell its mortgage holdings next year.

The $200 billion lines have no end date but the Treasury established them under authority provided by the Housing and Economic Recovery Act of 2008. That statute expires at yearend so if the Treasury waited until next year to address the GSEs, it would have needed to return to Congress for assistance.

Earlier Thursday, Fannie said it would pay its chief executive, Michael Williams a $2 million compensation package for 2009, including a $900,000 base salary. His counterpart at Freddie, Charles Haldeman, will receive $6 million, including a $900,000 base salary.

The Finance Agency noted that average executive compensation at Fannie and Freddie is now 40% lower than levels before the conservatorship was announced.

In the first nine months of 2009, Fannie has lost $56.8 billion. During the same period, Freddie has lost $14.1 billion.

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