US government to shore up mortgage finance firms

America’s real estate market was given a leg-up on Monday after the US government revealed it was prepared to shore up the country’s two biggest mortgage finance firms.

Last week the share prices of Freddie Mac and Fannie Mae slumped amid concerns they could struggle to raise capital. But the new government plan means the Federal Reserve would lend money to both firms if necessary while the Treasury could buy shares in the companies.

Both businesses are crucial to the US housing market and the economy in general as they own or guarantee nearly half of all American mortgages. US Treasury secretary Henry Paulson said:

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission.

“We appreciate Congress’ important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies.

“OFHEO (Office of Federal Housing Enterprise Oversight) will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission.”

Richard Syron, chairman of Freddie Mac, said the firm was “heartened” by the move while his Fannie Mae counterpart, Daniel Mudd, declared his company was “grateful” for the measures.

The share prices of both firms climbed sharply following the announcement, which could stave off a total meltdown of US homes market.

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