Interest Rate Roundup

Sunday, July 13, 2008

Fed, Treasury taking steps to support Fannie Mae, Freddie Mac

The news started leaking earlier in the day that the government would take various steps to try to build support for Fannie Mae and Freddie Mac. Now, more details are being officially released.

Here's an announcement from the Fed:

"The Board of Governors of the Federal Reserve System announced Sunday that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary. Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is intended to supplement the Treasury's existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets."

And here's an excerpt from an AP story with more details on what the Treasury will do:

"Secretary Henry Paulson said the Treasury is seeking authority to expand its current line of credit to the two companies should they need to tap it and to make an equity investment in the companies — if needed. Such moves will require congressional approval.

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies," Paulson said Sunday. "Their support for the housing market is particularly important as we work through the current housing correction."

"The Treasury's plan also seek a "consultative role" for the Federal Reserve in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed's role would be to weigh in on setting capital requirements for the companies."

The complete statement is available here.

UPDATE: Early market reaction? A 10-point pop in the S&P 500 futures traded on the Globex exchange. September long bond futures are off about 21/32. Gold is up $6-and-change. And the dollar has caught a little bit of a bid as well, but we're not talking about a major pop. For instance, it was trading up slightly to 1.5894 against the euro, vs. a previous New York close of 1.5938. We'll have to see if this strength carries through and builds overnight, or if it fades as we head toward the start of the U.S. trading day.

1 Comments:

  • This bailout of Freddie and Fannie is counterproductive. Another congressional initiative, the Mortgage Bailout, will tax Freddie and Fannie to the tune of $530 million/ YEAR. So Congress wants to bail out an institution and tax it as well? What’s going on? Call your senators/representatives and tell them: Back off the Mortgage Bailout Bill and Back off Bailing out Fannie and Freddie Mac!
    http://www.freedomworks.org/newsroom/press_template.php?press_id=2585
    Blue Dog House Contact info:
    1-866-887-5841
    http://www.freedomworks.org/newsroom/press_template.php?press_id=2580

    By Anonymous Anonymous, at July 14, 2008 at 1:28 PM  

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