US spells out Fannie-Freddie backstop plan

Videos
Photos

(Agencies)
Updated: 2008-07-14 09:18

A senior Treasury official said any increase in the line of credit - now at $2.25 billion for each company - would be at the Treasury secretary's discretion. The same would apply to any equity investment made by the government.

The official, who spoke on condition of anonymity, also sought to send a calming message about Fannie's and Freddie's financial shape, saying: "There's been no deterioration of the situation since Friday."

The Fed's offer of funds is viewed as a temporary backstop until Treasury can get its plan in place. The collateral they would have to pledge - Treasury securities and federal agency securities - is more narrow than the collateral commercial banks and Wall Street firms must pledge for emergency lending privileges.

If one or both of the companies were to fail, it would wreak havoc on the already fragile financial system and the crippled housing market. The problems would spill over in the national economy, too.

Paulson on Friday said the government's focus was to support the pair "in their current form" without a takeover.

Hoping to bolster confidence, Senate Banking Committee Chairman Chris Dodd, D-Conn., told CNN on Sunday that Fannie and Freddie are financially sound.

"What's important here are facts," Dodd said. "And the facts are that Fannie and Freddie are in sound situation. They have more than adequate capital - in fact, more than the law requires. They have access to capital markets. They're in good shape. The chairman of the Federal Reserve has said as much. The secretary of the Treasury has said as much."

Last week Fed Chairman Ben Bernanke and Paulson, appearing before the House Financial Services Committee, made a point of saying that the regulator of Fannie and Freddie, the Office of Federal Housing Enterprise Oversight, has found both companies adequately capitalized.

Previous page 1 2 3 Next Page