U.S. Government gets set for 2nd wave : unlimited aid to Freddie & Fannie

The U.S. government has removed the US $400 billion dollar cap and extended support to 2012 for Fannie Mae and Freddie Mac in preparation for the second wave. Fannie Mae and Freddie Mac together guarantee almost half of all mortgages in the USA.

The timing of the announcement, done during a no news period while everyone is celebrating Christmas and the unlimited nature has raised questions.

A journalist for the Canadian Press wrote “The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.”

The U.S. government has so far provided Fannie Mae with $60 billion of tax payers money and Freddie Mac with $51 billion. This is only $111 billion from the $400 billion cap originally pledged in September 2008 and due to expire on the 31st December.

“The companies are nowhere close to using the $400 billion they had before, so why do this now?” said Bert Ely, a banking consultant in Alexandria, Va. “It’s possible we may see some horrendous numbers for the fourth quarter and, thus 2009, and Treasury wants to calm the markets.”

» US extends guarantees on Fannie, Freddie – AFP Business, 25th December 2009.
» Fannie Mae and Freddie Mac receive unlimited future funds to stay afloat – The Canadian Press, 25th December 2009.