14 Jul 2008

Treasury, Fed take steps to back US mortgage companies

11:25 am on 14 July 2008

The US Treasury and Federal Reserve have announced steps to support Fannie Mae and Freddie Mac if needed to bolster confidence in the troubled mortgage companies.

The Fed said on Sunday they could access its discount window for emergency cash. The Treasury separately said that it would temporarily increase its line of credit to the two, as well as purchase equity in them, if needed.

The move by the Fed echoed emergency action to help rescue investment bank Bear Stearns in March, for the first time since the Great Depression.

A senior Treasury official said all the proposals need Congressional approval, but expressed confidence that could be secured within this week.

The US dollar edged higher against the euro and the yen on the news, which came before the scheduled sale of $US3 billion in three- and six-month notes by Freddie Mac on Monday.

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.

Their share prices have been hammered by concerns that they might run out of capital amid mounting home-loan losses.

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.