14 Jul 2008

Treasury statement expected on mortgage lenders

9:58 am on 14 July 2008

The US Treasury is expected to affirm its support for troubled mortgage finance giants Fannie Mae and Freddie Mac on Sunday.

A statement from Treasury is expected before financial markets start the week's trading in the Far East.

The two companies either own or guarantee almost half of the outstanding mortgage debt in the United States, about $US12 trillion. They are government-sponsored.

Fannie Mae and Freddie Mac buy mortgages and package them into guaranteed securities.

According to the Washington Post, Fannie Mae plans to auction $US3 billion in three and six month bills on Monday. The sale is one in a regular series.

Shares of the companies have fallen steeply recently on fears that they might have insufficient capital to cover mounting losses from the crumbling housing market.

Both the Sunday Times and Sunday Telegraph newspapers in London report the US government is considering injecting up to $US15 billion into Freddie Mac and Fannie Mae.

However, Treasury Secretary Henry Paulson signaled on Friday that a bailout was not imminent and said his primary focus was supporting them "in their current form".

US housing markets are experiencing their deepest downturn since the Great Depression.

Bank failure

Bank regulators stepped in late on Friday to prop up mortgage lender IndyMac Bancorp Inc after withdrawals by depositors led to the third-largest banking failure in US history.

IndyMac is the fifth US bank to fail this year. It will reopen on Monday as IndyMac Federal Bank under Federal Deposit Insurance Corp supervision.