The Obama administration said Thursday 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 that the companies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.
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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 Obama sends his 2011 budget to Congress in February.