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.
See also: Fed agency MBS purchases to begin within days
Fed opens $800 billion war chest to aid securitisation recovery
Restructuring and resignations at Fannie Mae
US authorities step in to rescue GSEs
Fannie and Freddie equity plunge continues as bailout looms
The week on Risk.net, March 10-16 2018Receive this by email