WASHINGTON - THE Treasury Department sought on Thursday to reassure investors that the government will meet its commitments in its unprecedented takeover of the nation's two largest mortgage companies.
Treasury released a statement aimed at answering what it described as 'frequently asked questions' about the takeovers including how solid it considered the pledge to provide up to US$200 billion (S$287 billion) in capital if needed to Fannie Mae and Freddie Mac.
The Treasury statement said while some may speculate that a future Congress might pass a law overturning that commitment, such a law would be inconsistent with the US government's long-standing history of honouring its obligations.
'The US government stands behind the preferred stock purchase agreements and will honour its commitments,' the Treasury document said.
Officials said they decided to issue the document to address a number of questions that had arisen since Treasury Secretary Hank Paulson announced on Sunday that the government was taking control of Fannie Mae and Freddie Mac in the most dramatic move yet to deal with the yearlong credit crisis gripping financial markets.
Addressing another question on whether parts of the agreement could be changed - such as the requirement that the two companies reduce their portfolios of mortgage-backed securities and other assets - the Treasury said, 'As with any contract, the parties to the agreement may modify the covenants by mutual agreement only.'
Some of the questions Treasury chose to answer have been prominent in market discussions this week, including why US$100 billion was chosen as the upper range of Treasury injections of capital into each company and 'is that enough to protect against even the worst downside scenario?'
Treasury officials indicated that they considered the US$100 billion figure for each company as more than adequate to meet any potential losses the companies may suffer as the mortgage debt they hold or guarantee goes bad.
'Treasury deliberately chose a large number to give confidence to the markets,' the document said. -- AP
