Fannie Mae and Freddie Mac, the two huge mortgage loan companies, are experiencing plummeting stock as they are having numerous mortgage defaults. As Fannie and Freddie stumble, more and more investors are holding off making transactions. In an act to counteract this, the Federal Reserve and the Treasury Department are making a plan to ensure that the past credit and mortgage losses do not further harm the market this year.

The Federal Reserve has authorized the Federal Reserve Bank of New York the power to lend funds to Fannie and Freddie, if necessary. Fannie and Freddie would pay the same rate paid by commercial banks and Wall Street firms, of 2.25%. In doing this, the Federal Reserve says that it will allow Frannie and Freddie to “promote the availability of home mortgage credit during a period of stress in financial markets.”

According to Secretary Henry Paulson, the Treasury is currently trying to get expedited authority from Congress, which would allow them to extend their credit line to Fannie and Freddie and again if necessary to make an equity investment. The Treasury also wants to male a consultative role for the Federal Reserve, to oversee any of the new plans if they are approved by Congress. Part of this role would be to decide on setting capital requirements.

Paulson commented on the plan of action, saying that the two giants are a key part of our finance system and that “Their support for the housing market is particularly important as we work through the current housing correction.” At the moment Fannie and Freddie manage almost $5.3 trillion in mortgage debt which is almost half the total of all mortgages in the U.S.

Investors are not sure if this is the miracle answer. Chris Johnson, an investment manager and president of Johnson Research Group, feels that “It is a situation where regulators and the government are trying to play catch up, and that means everything is not discounted in the stock prices yet.”

Bert Ely, an independent banking consultant, is also unsure of the Treasury´s idea to get Congress approval in order to make equity investments. He said that, “It suggests a greater concern about how these companies are doing. It says the problems are deeper. It gets to the solvency of the companies, not just the liquidity.”