The Federal Reserve Bank and Treasury unveiled a plan to help mortgage giants Fannie Mae and Freddie Mac last Sunday. The plan is an indication that the government is prepared to take all necessary steps to prevent further damage on the financial markets brought about by last year’s losses from subprime mortgages.

The Fed and the Treasury Department announcement seek to re-establish investors’ confidence on the two government sponsored companies.

With the announcement, the companies’ shares, which have sharply dropped as losses from their mortgage holdings threatened their financial survival, opened higher Monday. Fannie Mae rose 27 cents to $10.53, while Freddie Mac climbed 34 cents to $8.08.

The Fed authorized Federal Reserve Bank of New York to provide the two companies their required funds “should such lending prove necessary.” They would pay 2.25 percent for any borrowed funds. This is the same rate for commercial banks and big Wall Street firms.

The borrowed funds will help the two companies’ ability to “promote the availability of home mortgage credit during a period of stress in financial markets.”

Secretary Paul Henson said that “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies,” Paulson said Sunday. “Their support for the housing market is particularly important as we work through the current housing correction.” According to him, the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies and buy shares of the companies, if needed.

The Treasury plans to do a “consultative role” for the Fed if there would be any new regulation for Fannie and Freddie as the Congress deliberate on what to do with the two companies as well as FHA.

The packages includes a foreclosure rescue to help strapped homeowners get new, more affordable government-backed mortgages through the Federal Housing Administration, and creates a new regulator and tighter controls for Fannie Mae and Freddie Mac.

The White House, in a statement, said President Bush directed Paulson to “immediately work with Congress” to get the plan enacted. It also said it believed the steps outlined by Paulson “will help add stability during this period.”

Fannie Mae and Freddie Mac hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States.