Sept. 11 (Bloomberg) -- The U.S. Treasury said Fannie Mae and Freddie Mac's debt and mortgage-backed securities are ``protected'' by the government's stock purchase agreement that put the mortgage finance companies under federal control.

``The holders of senior debt, subordinated debt, and mortgage-backed securities issued or guaranteed by these GSEs are protected by the agreement without regard to when those securities were issued or guaranteed,'' the Treasury said today, referring to the so-called government-sponsored enterprises.

The federal government took over the two largest sources of money for U.S. home loans on Sept. 7, placing them under conservatorship and establishing procedures for buying their senior preferred stock if liabilities exceed assets.

The federal takeover didn't address whether the companies' $5.2 trillion in debt should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week with Bloomberg Television, Treasury Secretary Henry Paulson cited ``incongruities'' in the law, saying ``we should be clear, is there a government guarantee or isn't there?''

Any decision to add Fannie and Freddie to the budget wouldn't automatically translate into explicit government backing for the companies' combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees. Granting the full faith and credit of the U.S. would require an act of Congress to change the companies' legal status.

So far, the Treasury has not purchased any stock. As part of the agreement, each company gave Treasury $1 billion in senior preferred stock.

The stock purchase agreement is designed to discourage Congress from trying to change the terms of the agreement, the Treasury said. If Congress did try to change the law, it would open itself up to legal challenge, the fact sheet said.

``As with any contract, the parties to the agreement may modify the covenants by mutual agreement only,'' the Treasury said.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net.

Last Updated: September 11, 2008 17:53 EDT