US Lawmakers Seek Probe Into More Treasury Aid For Fannie, Freddie

US Lawmakers Seek Probe Into More Treasury Aid For Fannie, Freddie

WASHINGTON (Dow Jones)--The U.S. Treasury Department's surprise Christmas Eve move to uncap the potential aid to Fannie Mae (FNM) and Freddie Mac (FRE) should be investigated, lawmakers from both major political parties said Wednesday.

Rep. Dennis Kucinich (D., Ohio) said his congressional subcommittee plans to investigate Treasury's decision to lift the existing $400 billion cap on government cash available to the two firms. Separately, Reps. Scott Garrett (R., N.J.) and Spencer Bachus (R., Ala.) called for the House Financial Services Committee to hold a hearing on the matter.

Kucinich, who chairs the domestic policy subcommittee on the House Oversight and Government Reform panel, said he is concerned about how the two government-controlled firms will use their new flexibility.

"This cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U.S. taxpayers and acting as a back door (Troubled Asset Relief Program)," Kucinich said in a statement released by his office.

Garrett and Bachus raised similar concerns in a letter to Rep. Barney Frank (D., Mass.), who chairs the Financial Services panel. The two GOP panel members decried what they called a "transparent attempt to hide the news from the American people" by announcing the news the day before a major holiday.

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And the administration very much wants to keep this kind of intervention going. You can argue that some other policy — inflation targeting by the Fed, expanded fiscal stimulus, whatever — would be better. But none of these things seem politically possible. Keeping Fannie and Freddie fully engaged in the mortgage-support business is one of the few tools available to prop up a still very weak economy. And so they’re doing it.

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WASHINGTON (AP) -- The Obama administration says it is removing the $400 billion financial cap it will provide to Fannie Mae and Freddie Mac to keep the mortgage giants from failing.

Treasury Department officials said the cap will be replaced with a flexible formula to ensure the companies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.

Since the financial crisis hit last year, the Fannie and Freddie have received $111 billion in government infusions. In August, the administration projected the cost for rescuing Fannie and Freddie would total $170 billion.

While most analysts believe the companies are unlikely to use the full $400 billion, the administration decided to remove the cap to eliminate any doubts.

''The amendments to these agreements announced today should leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during the current crisis,'' Treasury said in a statement.

The formula Treasury will use will provide the institutions with a sufficient cushion based on the losses they may incur over the next three years.

Treasury officials will provide an updated estimate for Fannie and Freddie losses when President Barack Obama sends his 2011 budget to Congress in February.