The US Treasury said Thursday it would extend guarantees to Fannie Mae and Freddie Mac through 2012 to allow the government-sponsored mortgage finance giants to weather any new crisis.
A new, amended agreement lifts a cap of 200 billion dollars 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.
Officials said they amended an agreement from the September 2008 rescue of the two firms that was set to expire December 31.
Although officials said 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.”
Fannie and Freddie, which are shareholder-owned, government-chartered firms providing financing for housing, were placed in government conservatorship last year when they appeared near collapse amid a housing market meltdown.
Together, they underpin some five trillion dollars in mortgages, and their failure could have dealt another shock to a weakened global financial system.
Since the takeover, the government has provided 60 billion dollars to Fannie Mae and 51 billion dollars to Freddie Mac to keep them from being insolvent.
The regulator for the two firms, the Federal Housing Finance Agency, said there remain “uncertain conditions” in the housing market that could lead to further losses for Fannie and Freddie.
Thursday’s announcement by the Treasury also said the government would stop purchasing mortgage-backed securities from the two firms as of December 31, saying this effort was “no longer critical to financial stability.”
The Treasury said it will have purchased some 220 billion dollars worth of 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 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 around in February 2010.
The statement noted that some standards on loans have already been tightened under a policy “that enables a transition to an environment where the private market is able to provide a larger source of mortgage finance.”
Earlier 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 six million dollars 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 one million dollars, 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 FHFA, 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.