WASHINGTON (AFP) — A rescue proposed for mortgage finance giants Fannie Mae and Freddie Mac is "needed to respond to market concerns and increase confidence" in the government-sponsored firms, US Treasury Secretary Henry Paulson said Tuesday.
Paulson, testifying before the Senate Banking Committee, urged lawmakers to give speedy approval to a plan to allow the US Treasury to buy equity in the two firms to boost their capital along with other measures to raise confidence.
The Treasury chief offered no specific dollar amount for a proposal to boost the credit line for Fannie and Freddie, the government-sponsored enterprises (GSEs) which underpin trillions of dollars in home loans.
"Given the difficulty in determining the appropriate size of the credit line we are not proposing a particular dollar amount," Paulson said, according to a text of his remarks released by his office.
"Flexibility is the best means of increasing market confidence in the GSEs, and also the best means of minimizing taxpayer risk."
Paulson repeated that the administration endorsed "the current shareholder-owned structure of these enterprises" but said the reforms are needed to stave off a crisis.
"Continued confidence in the GSEs is important to maintaining financial system and market stability," he said.
Paulson said the proposals were "not prompted by any sudden deterioration in conditions at Fannie Mae or Freddie Mac," including a plunge in their share prices of some 75 percent.
"At the same time, recent developments convinced policymakers and the GSEs that steps are needed to respond to market concerns and increase confidence by providing assurances of access to liquidity and capital on a temporary basis if necessary," he said.
"Let me stress that there are no immediate plans to access either the proposed liquidity or the proposed capital backstop," he added.
"If either of these authorities is used, it would be done so only at Treasury's discretion, under terms and conditions that protect the US taxpayer and are agreed to by both Treasury and the GSE."
The plan announced Sunday after a near-meltdown in shares of the two firms would give them access to central bank lending facilities and a temporary increase, pending congressional approval, of their lines of credit from Treasury.
"Our plan addresses current market challenges by ensuring, on a temporary basis, access to both liquidity and capital, while also ensuring that the GSEs can fulfill their mission -- a mission that remains critical to homeowners and homebuyers across the country, especially during this housing correction," Paulson said.
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