14 Jul 2008

Bail-out reportedly under consideration

7:07 am on 14 July 2008

The US government is reported to be considering injecting up to $US15 billion into the providers of mortgage funding Freddie Mac and Fannie Mae.

The extra capital could be announced before American markets open on Monday, according to the Sunday Times and Sunday Telegraph newspapers in London.

Freddie Mac and Fannie Mae guarantee almost half of all home loans in the United States.

Their share prices fell nearly 50% last week amid fears that they might have trouble raising money.

Freddie Mac and Fannie Mae government-sponsored enterprises which buy debt from the companies that sell mortgages to house-buyers. They then sell the debt to investors. Because they are government sponsored, the price of mortgages is kept low.

On Friday, US Treasury Secretary Henry Paulson was forced to issue a statement saying that he would support them "in their current form" to dispel rumours of nationalisation.

Under the plan reportedly being considered, the US government would receive special shares in Fannie Mae and Freddie Mac.

Freddie Mac is due to sell $US3b in short-term debt on Monday.

According to the Washington Post, Treasury Department officials have been on the phone over the weekend making sure that banks that would normally buy such such debt from Freddie Mac are planning to bid this time.