Mortgage companies hanging by a thread
The US government moved last night to shore up the finances of the beleaguered lenders Fannie Mae and Freddie Mac in a desperate bid to prevent them defaulting on billions of dollars of mortgage debts.
Hank Paulson, the treasury secretary, called on Congress to support a plan that would allow the government to buy shares in the lenders during the next two years and underwrite their ballooning debts.
As part of the plan, the administration will call on Congress to raise the limit on government borrowing. It will also ask for powers for the Federal Reserve to insist that the lenders - which between them lend or guarantee more than $5 trillion of mortgages - hold a larger capital cushion to reassure nervous markets.
The debts of both institutions dwarf those of rivals. Fannie Mae has total debts of about $800bn, while Freddie has about $740bn. They account for more than 50% of the US mortgage market.
