The US Treasury announced on Tuesday that it plans to recruit the services of Morgan Stanley in an attempt to determine the best ways to deal with the troubled housing finance companies, Freddie Mac and Fannie Mae. Last week the US C ogress had passed wide-ranging housing rescue legislations which authorized the Treasury to take all possible steps in shoring up consumers’ confidence that had been severely battered by the housing market crisis.

Freddie Mac and Fannie Mae are the two biggest providers of housing finance in the US that guarantee almost $5 trillion worth of mortgage assets between them. The crisis in housing market saw the two financiers struggling for liquidity which in turn left thousands of homeowners at the deep end.

Under the new legislation, the Treasury has been allowed to provide equity and loans to Freddie Mac and Fannie Mae so that they remain viable providers of housing finance. However the Treasury said on Tuesday that it has no immediate plans of bailing out the two financiers but was bringing in the services of Morgan Stanley to determine whether the two finance companies were adequately capitalized. The contract with Morgan Stanley stands till January 17, 2009 and the Treasury will pay the finance firm’s expenses of $95,000 but will not pay any separate fee to the firm.

-Kalyani Mookherji