This May 2, 2007, file photo shows the Fannie Mae building in Washington, D.C. - AP

The Treasury Department said on Tuesday it had hired investment firm Morgan Stanley to help the United States government assess the risks facing mortgage giants Fannie Mae and Freddie Mac.

For US$95,000 to cover the company's expenses, Morgan Stanley will assess the state of the mortgage market and give the government a financial profile of the two firms. The two mortgage firms received a promise of support from the federal government as part of a sweeping housing rescue bill passed by Congress and signed into law by President George W. Bush last week.

Treasury spokeswoman Brookly McLaughlin said the contract would help ensure the Treasury Department had good advice to decide how to support the two mortgage firms, which together own or guarantee half of all US mortgages.

Back-up measure

While Congress gave Treasury the authority to extend an un-limited number of loans to the two companies, Treasury Secretary Henry Paulson has stressed that the new authority is a back-up measure that will not be used unless market conditions worsen.

In a statement, Morgan Stanley Chairman John Mack said his company would help the government evaluate "various alternatives for Fannie Mae and Freddie Mac".

"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 US housing market," Mack said.

The contract will run until January 17, three days before the next president is sworn into office. McLaughlin said that was a consideration in determining how long the contract would last.

The administration on July 13 unveiled a plan to provide unlimited government loans to the two mortgage giants and to purchase stock in the two companies if needed for a period covering the next 18 months.

Congress ultimately adopted those proposals as part of a broader bill that also seeks to help keep 400,000 households from losing their homes to foreclosure.

Critics charged that the open-ended nature of the support for Fannie and Freddie would expose taxpayers to billions of dollars of potential losses. Paulson has insisted that the package needed to be structured in this way to boost financial markets' confidence as the companies deal with mounting losses from mortgages that have gone bad.