US Treasury doubles aid to Fannie Mae and Freddie Mac

The US Treasury is investing another $200 billion in Fannie Mae and Freddie Mac, as part of a fresh effort to prevent a wave of foreclosures.

The Treasury said today it would double assistance to each of the government-sponsored entities (GSEs) from $100 billion to $200 billion. In return it will receive preferred stock, which confers no voting rights but carries a 10% coupon.

The decision is part of a three-part plan to help out US homeowners. The Treasury will also help up to five million homeowners refinance their mortgages at lower mortgage rates through the GSEs. Private sector mortgage lenders have generally been unwilling to allow mortgage borrowers to refinance loans while house prices are still falling.

Additionally, the Treasury will provide $75 billion in assistance to help up to four million homeowners make mortgage payments by modifying loans and subsidising repayment. The GSEs have also seen their portfolio ceilings lifted - they will now be allowed to hold up to $900 billion in mortgages.

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