Freddie Mac in $3bln debt sell-off to calm investors

Tag : two for one

Treasury Secretary Henry Paulson in a dramatic move on Sunday unveiled measures to bolster the twomain US housing companies Fannie Mae and Freddie Mac, which weregiven Federal Reserve oversight and bigger credit lines.
The two firms own or guarantee almost half of all US home loans, orabout five trillion dollars (three trillion euros) of debt, andhave been in crisis amid the worst housing downturn in the UnitedStates in a quarter century.
Paulson said Sunday that the "central role" the two playin real estate financing meant they should continue to respond toshareholders and should not be taken over by the federalgovernment.
To protect them from liquidity problems, Paulson said the twoorganizations would get a bigger credit line"temporarily" but gave no details on the amount or terms.
The Treasury Department will get temporary authority to buy their shares should that benecessary, Paulson said.
It was not immediately clear whether such purchases would becarried out on the market to support Fannie Mae and Freddie Mac's share values or through a capital injection -- which has not been possible thusfar due to their weak share values.
Freddie Mac is scheduled to sell three billion dollars inshort-term notes on Monday.
The Board of Governors of the Federal Reserve System meanwhileannounced it had granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac.
Any lending would be at the primary credit rate and collateralizedby US government and federal agency securities. The authorizationis meant to supplement the Treasury's lending authority, officialssaid.
"We are grateful for the leadership of Secretary Paulson and(Fed) Chairman (Ben) Bernanke," Fannie Mae CEO and president Daniel Mudd said.
He urged Congress to ensure "swift passage of the newlegislative proposals, as well as the important initiativesunderway to assist homeowners and help restore stability to thehousing market.
"We continue to hold more than adequate capital reserves andmaintain access to liquidity from the capital markets," Muddsaid.
"Given the market turmoil, having options to accessprovisional sources of liquidity if needed will help to strengthenoverall confidence in the market. "We will continue to do ourpart to provide liquidity, stability and affordability to thehousing market now and in the future."
White House press secretary Dana Perino said that "Fannie Mae and Freddie Mac play an important rolein our housing finance system, and they should continue to playthis role in their current forms as shareholder-ownedcompanies."
"This evening, after working with the companies, the Federal Reserve , and other regulators, Treasury Secretary Paulson outlined a planthat we believe will help add stability during this period.President (George W.) Bush directed Secretary Paulson toimmediately work with Congress to act on this plan," she addedin a statement.
"It is crucial that Congress quickly work to enact thislegislation as a complete package along with the strong oversightreform legislation recently passed in the Senate."
The two government-chartered, shareholder-owned giants underpinsome five trillion dollars in home loans, and the meltdown in theirshares last week raised fears of a government bailout or a possibleworsening of the credit crunch.
To organize the bailout of Bear Stearns by JPMorgan Chase , the Fed earlier this year agreed to back a restructuring worthsome 30 billion dollars, with no guarantee its investment will bereturned in full.