Treasury Fortifies Fannie & Freddie

The Treasury’s preferred investments in Fannie stood at around $50 billion as of Dec. 31, while it had invested around $16 billion in Freddie so far. The increased capacity would enable another $334 billion in investments.

The agreements were originally executed when Fannie and Freddie were both seized by the Federal Housing Finance Agency in September.

“The increase announced today is not intended to indicate any estimate of possible losses with respect to the companies, but to provide assurance to market participants,” Treasury Secretary Timothy Geithner assured the markets in the press release. “The increased funding will provide forward-looking confidence in the mortgage market.”

The announcement was welcomed by the two companies’ regulator, the FHFA — which is part of the Treasury.

The additional investments will be financed using funds already authorized under authority provided by the Housing and Economic Recovery Act.

Geithner also said that the expanded funding will support the part of the plan that involves refinancing GSE-owned or -managed loans that have not defaulted but are above 80 percent loan-to-value. That program allows LTVs up to 105 percent.

The Treasury noted that the two secondary lenders financed almost three-quarters of new mortgages last year.

Today’s package also includes the Treasury’s continued investments in mortgage-backed securities issued by the two firms, as well as a $50 billion increase in the maximum size of their retained mortgage portfolios and a $50 billion increase to allowable debt outstanding.

“Fannie Mae and Freddie Mac are critical to the functioning of the housing finance system in this country and play a key role in making mortgage rates affordable and maintaining the stability and liquidity of our mortgage market,” Geithner stated. “It is crucial to maintain confidence in both of these institutions even under worse-than-expected economic conditions.”