US Congress throws a lifeline at Freddie, Fannie
House of Representatives to vote on Wednesday on rescue plan for beleaguered mortgage finance providers.
By Bloomberg |
NEW YORK/WASHINGTON: Fannie Mae and Freddie Mac rose after US lawmakers reached a deal on legislation that authorises Treasury secretary Henry Paulson to bail out the mortgage-finance providers while placing few restrictions on the companies.
Fannie Mae gained as much as 27% and Freddie Mac added 18% in New York Stock Exchange composite trading.
The House of Representatives is set to vote on Wednesday on the rescue plan for Fannie Mae and Freddie Mac as part of a bill aimed at alleviating the worst housing slump since the Great Depression. Legislators crafted the agreement nine days after Mr Paulson asked for powers to inject capital into Fannie Mae and Freddie Mac to enable them to continue buying mortgages.
���It is good news if you own Fannie and Freddie stocks,��� said Brian Battle, vice-president of Trading at the Chicago-based brokerage Performance Trust Capital Partners. ���Fannie and Freddie will exist as they are now and will get bigger because Congress wants them to do something about the housing market, so that���s good for Fannie and Freddie.���
Fannie Mae added $2.66 to $16.07 at 10:19 am in New York. Freddie Mac added $1.40 to $11.10. Fannie Mae is down around 66% this year, and Freddie Mac nearly 72%, declines that began amid speculation the companies may not have the capital to survive. Both traded above $60 a share last year.
No Dividend Requirement
The treasury is also prohibited from compelling the companies to issue securities or purchase common stock without their agreement, Goldman Sachs Group analysts wrote in a note to clients on Wednesday.
���The package we have got is fully acceptable��� to the treasury, Representative Barney Frank, a Massachusetts Democrat, who chairs the House Financial Services Committee, said late on Tuesday.
Stronger Regulator
The bill provides for the Federal Reserve to consult on Fannie Mae and Freddie Mac finances. Paulson said this week that the Fed has already begun participating in assessments of the companies.
Fannie Mae gained as much as 27% and Freddie Mac added 18% in New York Stock Exchange composite trading.
The House of Representatives is set to vote on Wednesday on the rescue plan for Fannie Mae and Freddie Mac as part of a bill aimed at alleviating the worst housing slump since the Great Depression. Legislators crafted the agreement nine days after Mr Paulson asked for powers to inject capital into Fannie Mae and Freddie Mac to enable them to continue buying mortgages.
���It is good news if you own Fannie and Freddie stocks,��� said Brian Battle, vice-president of Trading at the Chicago-based brokerage Performance Trust Capital Partners. ���Fannie and Freddie will exist as they are now and will get bigger because Congress wants them to do something about the housing market, so that���s good for Fannie and Freddie.���
Fannie Mae added $2.66 to $16.07 at 10:19 am in New York. Freddie Mac added $1.40 to $11.10. Fannie Mae is down around 66% this year, and Freddie Mac nearly 72%, declines that began amid speculation the companies may not have the capital to survive. Both traded above $60 a share last year.
No Dividend Requirement
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The bill doesn���t require the companies to cut or eliminate dividends if they tap the federal aid, and instead leaves it to the discretion of the treasury secretary, said Joshua Rosner, an analyst with independent research firm Graham Fisher & Co in New York. It also doesn���t automatically give the treasury preferential treatment over other shareholders if it buys the companies��� preferred shares. The treasury is also prohibited from compelling the companies to issue securities or purchase common stock without their agreement, Goldman Sachs Group analysts wrote in a note to clients on Wednesday.
���The package we have got is fully acceptable��� to the treasury, Representative Barney Frank, a Massachusetts Democrat, who chairs the House Financial Services Committee, said late on Tuesday.
Stronger Regulator
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Lawmakers added the provisions to legislation that would create a stronger regulator for Fannie Mae and Freddie Mac and expand federal efforts to stem mortgage defaults. The new regulator has reduced the authority to approve new lines of business or products, Mr Rosner said. The bill provides for the Federal Reserve to consult on Fannie Mae and Freddie Mac finances. Paulson said this week that the Fed has already begun participating in assessments of the companies.
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The housing bill would create a programme aimed to help an estimated 400,000 Americans with subprime home loans refinance into 30-year, fixed-rate mortgages backed by the government. Fannie Mae and Freddie Mac would have a new, higher cap on the size of mortgages they may purchase. The new limit would be $625,000, or the median home price plus 15%, whichever is lower, Mr Frank said. Download
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