Short-lived gains for Fannie and Freddie

Source: Exec Digital USA

Date :14/07/2008 07:27:58

Despite the Government’s pledge for support, the mortgage financiers saw mixed results in trading today.

Shares of Fannie Mae rose 30 percent to US$12.41, while Freddie added 20 percent to US$9 just after the market opened this morning.

However, these gains were short-lived and receded almost as suddenly.

Analysts are treating this as a fizzling out of enthusiasm over the Federal Reserve’s statement that it would back the two companies "should such lending prove necessary."

On Sunday, July 13, the Treasury Department agreed to raise Fannie and Freddie's credit lines above the existing US$2.25 billion apiece and buy shares to strengthen their finances if needed. The Federal Reserve offered to let the agencies borrow at the rate it charges banks for direct loans.

However, this does not look as if it has been enough to instill confidence in the troubled lenders.

Fannie and Freddie combined, which own or guarantee roughly US$5.2 trillion of US home mortgages, have capital cushions of only US$81 billion and just US$2.25 billion each in credit lines from the Treasury.