The Times Online is reporting US Treasury rescue for Fannie Mae and Freddie Mac
US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.
The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.
Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.
The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.
Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.
…The funding lines allow Freddie and Fannie to buy mortgages from America’s commercial banks, which it then sells on to bond investors through securitisations. A government guarantee on the company’s debts allows it to raise money cheaply, making mortgages cheaper to finance for US banks.
Some in Wall Street believe a rescue plan may be announced ahead of tomorrow’s US market opening to calm nerves and support the debt auction.
Bloomberg adds Fannie, Freddie in Talks With Treasury About Funding
July 13 (Bloomberg) — Fannie Mae and Freddie Mac are in talks with Treasury, Federal Reserve and White House officials to come up with funding plans should the beleaguered mortgage companies require financing, according to people with knowledge of the discussions.
Freddie Mac is scheduled to sell $3 billion in short-term notes tomorrow. The Treasury Department is expected to make an announcement about the talks later today. Officials are negotiating plans for a possible funding backstop mechanism in case the McLean, Virginia-based company can’t find enough investors for the debt, said the people, who declined to be identified because the negotiations haven’t been announced.
Freddie Mac tumbled 47 percent in New York Stock Exchange composite trading last week and Washington-based Fannie Mae lost 45 percent of its value, forcing U.S. Treasury Secretary Henry Paulson to pledge support for the companies. Fannie Mae and Freddie Mac are critical for the housing market because they guarantee almost half the $12 trillion in outstanding U.S. mortgages.
Treasury is not expected to take immediate action today, these people said. Officials are debating several options and may simply reiterate a July 11 statement of support for the companies while they gauge investor demand for Freddie Mac’s note sale.
Other Options
Other options down the road include injecting billions of dollars in new capital into the companies, though Fannie Mae and Freddie Mac want to limit government involvement, the people said.















