MercoPress. South Atlantic News Agency

IMF praises US decision to take over mortgage agencies

IMF Managing Director Dominique Strauss-Kahn

The United States government decision to place its leading mortgage agencies into conservatorship “will help support markets and by extension the economic and financial situation” said International Monetary Fund Managing Director Dominique Strauss-Kahn in a Monday release.

"We welcome Secretary Paulson's announcement of decisive action through a four-part program to remedy the difficult financial situation of Fannie Mae and Freddie Mac. These institutions are central to the U.S. mortgage and housing markets. This action will help support these markets and, by extension, the economic and financial outlook. "While we are still studying the details of the plan, a key feature is the provision of explicit Treasury support of their regular business activities. This is expected to allow a modest and temporary increase in the portfolios of these institutions over the next 15 months that will support the wider availability of mortgage financing. At the same time, protection has been built in to limit moral hazard. The management of the institutions is being replaced and Treasury injections will be senior to other shareholders who have already faced significant losses. "Looking further to the future, it will be important that the corporate governance of Fannie and Freddie is fundamentally restructured, in order to facilitate competition and market discipline. As we and others have long recognized, a key difficulty has been that these privately-owned entities with some public policy objectives have used the low funding costs from a perceived implicit government guarantee to build their portfolios, thereby benefiting their shareholders. The Treasury plan allows time to build widespread consensus for important reforms to these institutions, while ensuring meanwhile market stability and support for the economic recovery."