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Treasury removes funding limit for Fannie Mae, Freddie Mac, relaxes portfolio reduction rules
By Kenneth Lim
Boston, Dec. 24 - The U.S. Treasury on Thursday removed the $400 billion limit on its credit line to Fannie Mae and Freddie Mac, seeking to reassure investors about its commitment to the agencies.
The government's support will now increase as necessary for three years to keep the two mortgage agencies at positive net worth. After three years, the remaining commitment will then be fully available to be drawn.
"The amendments to these agreements announced today should leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis," the Treasury said in a statement.
The Treasury also eased its requirement that Fannie Mae and Freddie Mac reduce their portfolios by 10% per year beginning in 2010. The reduction requirement will now be based not on the size of the 2009 portfolios but on the eventual reduced portfolio size of $900 billion per institution.
The Christmas Eve announcement came just before a Dec. 31 deadline, beyond which the Treasury would have to seek Congressional approval for any further aid to Fannie Mae and Freddie Mac. The initial aid, which was created through preferred stock purchase agreements, was offered when the agencies went under conservatorship in September 2008.
Of the initial $400 billion lifeline, which was split evenly between Fannie Mae and Freddie Mac, the agencies have so far drawn down $111 billion. But there was concern that the cap should be higher for 2010 with the government-sponsored enterprises still incurring losses.
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