The US government pledged virtually unlimited aid on Thursday to Fannie Mae and Freddie Mac through 2012 that are meant to allow the government-sponsored mortgage finance giants to weather any new crisis.
The announcement by the US Treasury allows the government to postpone an exit strategy for aid to the two firms that underpin trillions of US dollars in mortgages and play a key role in the global financial system.
Officials said they amended an agreement from the September last year rescue of the firms that was set to expire at the end of this year.
CAP’S OFF
The new agreement lifts a cap of US$200 billion in aid that can be pumped into each of the two firms, and gives the government unlimited authority to inject funds into Fannie and Freddie if the housing crisis intensifies.
Although officials said that they were not near the limit for aid, the new agreement “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 the current crisis.”
A Treasury statement said the cap on aid would be raised “as necessary to accommodate any cumulative reduction in net worth over the next three years.”
PAY PACKAGES
Earlier on Thursday, US officials unveiled multimillion-dollar pay packages for executives at Fannie Mae and Freddie Mac in a new step back from a clampdown on executive compensation.
Documents filed by the regulator for the two firms showed Fannie Mae chief executive Michael Williams and Freddie Mac CEO Charles Haldeman could each earn up to US$6 million per year, although some of that is deferred or conditioned on the performance of the companies.
Six other high-level executives at Fannie Mae and four others at Freddie Mac could earn over US$1 million, depending on performance.
The regulator for the firms, which were seized by the government amid a meltdown in the housing market, said that even with the new pay levels, compensation for the top executives is down 40 percent from before the firms were placed in government “conservatorship.”
Edward DeMarco, acting director of the Federal Housing Finance Authority, said these firms need competent executives since they play a role in funding three-fourths of all new residential mortgages.
“The enterprises must attract and retain the talent needed to accomplish these objectives,” he said.
Thursday’s announcement by the Treasury also said that the government would stop purchasing mortgage-backed securities from the two firms as of next Thursday, saying this effort was “no longer critical to financial stability.”
BONDS
The Treasury said it will have purchased some US$220 billion in bonds from government-sponsored enterprises.
The announcement postpones a decision on a longer-term solution for Fannie and Freddie, which play a key role in the global financial system but are operating under government support.
The Treasury statement said the administration of US President Barack Obama “is in the process of reviewing issues around longer term reform of the federal government’s role in the housing market” and would offer a preliminary report in February.
The statement noted that officials envision “a transition to an environment where the private market is able to provide a larger source of mortgage finance.”
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