In a bid to stem the global financial crisis, the US Government has taken over embattled mortgage giants Fannie Mae and Freddie Mac, sparing Australian banks from huge debt write-downs.
Local lenders are believed to hold billions in debt securities issued by the two government sponsored enterprises (GSE), which own or guarantee almost half the US$12 trillion mortgage market.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets, here at home and around the globe,” US Treasury Secretary Henry Paulson said in a statement.
National Australia Bank (NAB) has $1.2 billion in US housing market debt, the biggest exposure among local lenders.
On September 7, in collaboration with the Federal Housing Finance Agency (FHFA), the US Treasury put Fannie and Freddie into conservatorship.
The US Treasury bought US$1 billion of the companies’ preferred stock and may inject US$100 billion into each firm as required, to prevent their collapse.
The move sparked a rally in Australian financial stocks yesterday, with ANZ Banking Group and Macquarie Group both surging over 8 per cent.
Although the bailout was a confidence boost for GSE debt holders, it did not solve fundamental problems in the US, such as plummeting house prices, Morningstar analyst Peter Warnes said.
The US economy would continue to slow as unemployment rose and house prices fell, causing the housing crash to continue, he said.
The GSEs will be restructured to make home loan funding easier to access, and their chief executives will be replaced.
