12 Jul 2008

US mortgage companies 'sound'

5:15 pm on 12 July 2008

America's top mortgage finance companies, Fannie Mae and Freddie Mac, say their finances can withstand the housing crisis, despite turmoil in the share prices on Friday.

At one stage, the companies' shares had lost almost half their value. Fannie Mae stocks closed down 22% while Freddie Mac ended just 3.1% down.

United States government officials scrambled to restore confidence in the companies.

Treasury Secretary Henry Paulson indicated that a bailout was unlikely despite financial market concerns that the agencies, which finance nearly half of US homes, may have trouble raising enough money to keep buying mortgages.

A key senator said the US Federal Reserve was considering allowing the companies to borrow directly from the central bank, spurring speculation that the Federal Reserve may take action as early as this weekend.

Senator Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, said he spoke with Federal Reserve chairman Ben Bernanke and Mr Paulson.

Mr Dodd said they were looking at various options, including opening access to the discount window, through which the central bank acts as a lender of last resort for the US banking system.

Investors were worried the mortgage agencies might run short of capital, placing the fragile US economy at even greater risk and deepening the housing slump.

Mr Dodd told a media conference the institutions were fundamentally sound and strong.