Fannie and Freddie facing financial problems by Martina Janeckova

On Sunday, July 13 2008, the Treasury Department agreed to rise Fannie and Freddie’s credit lines above the current $2.25 billion each and buy shares to strengthen their finances if needed. Fannie and Freddie together finance about half of U. S. homes and are seen vital for stabilizing the worst housing crisis since the Great Depression. Fannie and Freddie own or guarantee $5 trillion of debt which is nearly half the value of all U. S. mortgages. The situation on the housing market is really hard nowadays. Friday’s failure of mortgage lender IndyMac Bancorp Inc., the third-largest bank collapse in U. S. history, reminded us of that. The shares of important banks including National City and Washington Mutual were injured and fell sharply. The Treasury Department wants Congress to approve temporary increase in credit line for Fannie and Freddie. Its size should be determined by Treasury Secretary Henry Paulson and the lending should be short-term. Fannie and Freddie rely mostly on regular debt auctions for funding. On Monday, $3 billion of the debt from Freddie was sold. Fannie announced that it will sell $3 billion of debt on Wednesday. After the announcement of the pledge of the Treasury department stocks rised, but they fell later again as the result of the investors fear of the slowing down economy. Freddie Mac shares fell 8.3 percent to end at $7.11 and Fannie Mae lost 5.1 percent to close at $9.73. Their shares were very volatile over the recent days. Billionaire investor George Soros told that “This incident (Fannie and Freddie) is not the last one and we are facing the most serious financial crisis of our lifetime.”

by Martina Janeckova for PocketNews (http://pocketnews.tv)

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