Mortgage giants up on debt sale

Posted by admin on 26 August, 2008 under Business news | Be the First to Comment

Shares in US mortgage finance giants Freddie Mac and Fannie Mae rose after Freddie Mac sold around $2bn (£1bn) of short-term debt.

The move boosted confidence in the mortgage giants sending Freddie Mac stock up 17% and Fannie Mae up 3.8%.

Both lenders’ shares have fallen recently on fears that they could go bankrupt as borrowers default on loans.

Combined Freddie Mac and Fannie Mae guarantee around half of the mortgages offered in the US.

Rajiv Setia, an strategist with Barclays Capital said after the sale: “Government Sponsored Enterprises (GSE) continue to have access to funding.”

The successful sale on Monday was greeted positively by Wall Street, with analysts saying it showed confidence – at least short terms – in the lenders.

“We are not convinced that [the government] needs to take take any action over the near term,” said Citigroup analyst Bradley Ball.

Freddie Mac and Fannie Mae are a key part of the US mortgage market.

As mortgage guarantors, they must pay out when homeowners default on their loans.

But in light of the weakening US housing market, their finances have been highly strained by rising defaults and falling house prices.

News reported by The BBC