Fed Opens Lending Window to Fannie/Freddie

The Federal Reserve is opening its lending window to Fannie Mae and Freddie Mac to head off any short-term funding problems and on Sunday Treasury secretary Henry Paulson outlined a number of immediate steps Congress can take to bolster investor confidence in the two government-sponsored enterprises. The Treasury secretary is asking Congress to temporarily increase the mortgage giants' current $2.25 billion line of credit with the U.S. Treasury along with temporary authority for Treasury to purchase stock in the two mortgage giants. "I look to work closely with the congressional leaders to enact this legislation as soon as possible, as one complete package," Mr. Paulson said Sunday evening. Administration officials want Congress to include the temporary measures in a major housing bill that Congress is expected to pass in a few weeks. Senate Banking Committee chairman Christopher Dodd, D-Conn., suggested, however, that emergency measures might be handled in a separate bill. "It is a matter of some debate," he said. The Fed also acted on Sunday to support Fannie and Freddie by allowing the GSEs to borrow from the Federal Reserve Bank of New York. "Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities," the Fed said. Fannie and Freddie chief executives welcomed the government's support, but insisted they have adequate capital. "We are in the process of finalizing our June 30, 2008 results and we estimate that they will show we have a substantial capital cushion above the 20% mandatory target surplus established by our regulator," Freddie chairman and CEO Richard Syron said.