Shares of mortgage giants Fannie Mae and Freddie Mac soared Monday after the Treasury Department removed limits on how much money it will spend to keep the companies operating.
Instead of an existing $400 billion cap, the Treasury Department said last week it will increase financial support according to how much each company loses in a quarter.
Shares of Fannie Mae gained 20 cents, or 19 percent, to $1.25 in afternoon trading. Freddie Mac's shares rose 29 cents, or 23 percent, to $1.55.
In the past year, Fannie Mae's shares have ranged from 35 cents to $2.13. Freddie Mac's stock has traded as low as 35 cents and as high as $2.50.
Fannie Mae and Freddie Mac provide liquidity to the mortgage industry by buying home loans from lenders and selling them to investors. Together, they own or guarantee about half the nation's mortgages, worth a total of about $5.5 trillion.
As housing prices fell and a tidal wave of adjustable-rate mortgages reset to higher rates, borrowers who found it impossible to refinance defaulted on mortgages. Freddie Mac and Fannie Mae posted billions in losses before September 2008, when the government stepped in to bail them out. The takeover marked the start of a five-week meltdown in the financial sector that saw the collapse of Lehman Brothers, the sale of Merrill Lynch to Bank of America, frozen credit markets and a stock market plunge.
So far, taxpayers have handed over $111 billion to Freddie Mac and Fannie Mae. Without government aid, the firms would have gone broke, leaving millions of people unable to get a mortgage.
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