Reply #4: Governmental Good Cheer: Treasury to provide as much capital as Fannie, Freddie need

[Demeter]

http://www.marketwatch.com/story/treasury-lifts-cap-on-aid-to-fannie-freddie-wsj-2009-12-25?siteid=YAHOOB

The U.S. Treasury agreed to provide Fannie Mae and Freddie Mac with as much capital as they need over the next three years, in an effort to reassure the investors who bought the giant mortgage companies' debt, The Wall Street Journal reported.

Late on Thursday, the Treasury also said that it would stop buying the companies' mortgage-backed securities and end a short-term-liquidity facility set up for both companies and for the Federal Home Loan Banks. That facility was never drawn upon, the Journal reported.

And the Treasury Department said that Fannie Mae /quotes/comstock/13*!fnm/quotes/nls/fnm (FNM 1.05, 0.00, 0.00%) and Freddie Mac /quotes/comstock/13*!fre/quotes/nls/fre (FRE 1.27, +0.01, +0.79%) could reduce their giant mortgage-securities portfolios more slowly than its previous requirement of 10% a year.

The Treasury moved when it did because its authority to change the terms of its agreements with the two companies without Congress's approval expires Dec. 31, the Journal reported.

In September 2008, the Treasury seized the two companies, which had been heading for collapse under the weight of mounting mortgage defaults. The Treasury said then that it would inject as much as $100 billion of capital into each company in exchange for preferred stock paying a 10% dividend.

It has since put $60 billion into Fannie Mae and $51 billion into Freddie Mac, the Journal reported.

The new terms enable the Treasury to increase its support for the companies by the amount of the two companies' net losses over the three years beginning Jan. 1.