For a fee of $95,000, Morgan Stanley will analyze the state of the mortgage market and provide the Treasury Department with a financial profile of the two ailing mortgage companies. The contract will run until January 17, 2009, just three days before the next president is sworn into office
According to Treasury spokeswoman Brookly McLaughlin, the Morgan Stanley contract will help ensure the Treasury Department is operating on good advice when deciding how to best support the ailing mortgage companies.
Although Congress has received authority from the Treasury to extend an unlimited amount of loans to Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson emphasizes that the new authority is strictly a back-up measure that won’t be implemented unless market conditions worsen.
Morgan Stanley Chairman John Mack said, "We are pleased to be able to offer our services to the government and look forward to working with Secretary Paulson and his team as they work to restore stability to the global capital markets and confidence in the U.S. housing market."
Last month the administration proposed a plan to provide unlimited government loans to Freddie Mac and Fannie Mae, and to pledge to purchase stock in the two companies, if needed, for a period covering the next 18 months. Congress adopted the proposals as part of a broader in hopes of saving 400,000 consumers’ homes from being foreclosed upon.
Critics of the proposal say the open-ended nature of the support for leaves U.S. taxpayers at risk of seeing billions of dollars of potential losses. Paulson countered the package had to be set up this manner to shore up financial markets' confidence as the companies deal with mounting losses from mortgages that have gone bad.
Paulson said this assurance was critical not only for investors in this country but around the world. Of the $5 trillion in debt and mortgage-backed securities Fannie and Freddie have issued, more than $3 trillion is held by U.S. financial institutions and over $1.5 trillion is held by foreign institutions.