New fed housing program involves $29B in financing

AP News
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Posted: Nov 19, 2009 5:18 PM

A new federal program to support state and local housing finance agencies is expected to involve more than $29 billion in government support, Fannie Mae and Freddie Mac disclosed Thursday.

Under the program announced by the Treasury Department last month, the government-controlled mortgage companies will help fix the funding crunch at housing finance agencies, which have struggled to raise money because of the housing and credit crises.

Fannie and Freddie will package mortgages made by the housing agencies and sell them as bonds to the Treasury Department. The companies said they each could lose $9.2 billion in a worst-case scenario where every borrower defaults and no money is recovered through foreclosure.

But Treasury Department officials say any losses from loan defaults will be covered by fees paid by the state agencies. They expect no cost for the federal government.

Treasury officials had declined to place a dollar value on the size of the bond program when it was announced, saying it will be based on demand. The housing finance agencies aid up to 200,000 first-time borrowers a year.

Fannie Mae and Freddie Mac, which were seized by federal regulators in September 2008, purchase home loans from lenders and sell them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages.