Treasury lifts aid cap, loosens timeline for Frannie, Freddie to reduce holdings
The U.S. Treasury Department said Thursday that it will remove the caps on assistance to Fannie Mae and Freddie Mac for the next three years to alleviate market concern about the effect of limited government assistance.
The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each in backstop capital from the Treasury. Under the new deal, these caps can rise as needed to cover net losses over the next three years.
Fannie Mae and Freddie Mac now are using a combined $111 billion of the total $400 billion in available assistance. Treasury Department officials said they did not expect the companies to need assistance beyond what is available under the current caps, barring significant deterioration in the economic outlook.
Thursday’s announcement "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 in Washington.
The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolio of retained mortgages. Previously, the companies were instructed to shrink their portfolios at a rate of 10 percent a year. Now, they will be required to keep their portfolios below a maximum limit, currently $900 billion, that will fall by 10 percent a year.
This means they will not need to take immediate action to reduce their holdings and could allow them to rise payday loans for bad credit. Fannie Mae’s portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies.
The Treasury said Thursday that it is ending its mortgage- backed security purchase program as of Dec. 31, after $220 billion in purchases. The government also is eliminating a short-term credit facility for the two companies and the Federal Home Loan Banks that was never used.
EXECUTIVE PAY
The two chief executives of Fannie Mae and Freddie Mac could get paid as much as $6 million for 2009, despite the companies’ dismal performances this year, which cost taxpayers more than $100 billion.
Fannie’s CEO, Michael Williams, and Freddie CEO Charles "Ed" Haldeman Jr. each will receive $900,000 in salary, $3.1 million in deferred payments next year and another $2 million if they meet performance goals, according to filings with the SEC on Thursday.
The packages were approved by the Treasury and the Federal Housing Finance Agency, which regulates Fannie and Freddie.
The Associated Press contributed to this report.