Friday, July 11, 2008

Fed Says No Talks With Fannie, Freddie About Loans (Update1)

By Scott Lanman

July 11 (Bloomberg) -- The Federal Reserve has not had any discussions with Fannie Mae and Freddie Mac about access to direct loans from the central bank, Fed spokeswoman Michelle Smith said.

``Federal Reserve officials are following the situation closely,'' Smith said in a telephone interview today. ``However, there have been no discussions'' with the companies ``about access to the discount window,'' she said.

Shares of the two largest U.S. mortgage-finance companies plummeted this week on concern they don't have enough capital to offset losses from the mortgage meltdown. The discount window offers direct loans to commercial banks at an interest rate that's now 2.25 percent, a quarter point above the Fed's benchmark rate.

Chairman Ben S. Bernanke and his colleagues opened the discount window to investment banks at the time of the collapse of Bear Stearns Cos. in March to alleviate the credit crisis.

Even if the Fed did provide emergency funding to Fannie Mae and Freddie Mac, it's ``not a solution'' for maintaining the companies' solvency, said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington. ``If it happens, it would only be a bridge to some other government solution,'' said Sack, a former Fed research manager.

`Various Options'

Fed and Treasury officials are discussing ``various options'' to help Fannie Mae and Freddie Mac, Senate Banking Committee Chairman Christopher Dodd said earlier today.

Reuters reported earlier that Bernanke told Freddie Mac's chief executive officer Richard Syron that the two government- chartered companies could take advantage of the discount window.

Smith said she was ``not prepared to discuss the range of options and alternatives being considered.''

Today, U.S. Treasury Secretary Henry Paulson signaled that a government takeover of Fannie Mae and Freddie Mac won't be necessary, saying they should continue as shareholder-owned companies with federal charters.

``Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,'' Paulson said in a statement in Washington. President George W. Bush told reporters separately that the two firms are ``very important institutions'' and that he discussed market ``concerns'' with Paulson earlier today.

Dodd, a Connecticut Democrat, said at a press conference today that the companies are sound, and the ``facts don't warrant'' the negative reaction by investors.

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