On Tuesday evening, the Securities and Exchange Commission extended its emergency rule limiting short selling of Fannie Mae, Freddie Mac and 17 brokerage firms to Aug. 12.

The rule requires short sellers to pre-borrow their share prior to enacting the transaction, and was set up in order to limit 'naked' short selling. The measure was initially set up on July 21 to limit the damage to the U.S. financial system when GSEs Fannie Mae and Freddie Mac came under pressure several weeks ago.

"The commission will continue exploring other remedies for the broader marketplace to further protect inventors from distort and short artists," said SEC Chairman Chris Cox in a statement following the announcement.



Since July 21, Congress has passed a housing bill which U.S. President George W. Bush signed on Wednesday morning, giving the Treasury Department authority to extend an unlimited line of credit to Fannie Mae and Freddie Mac along with purchase shares if necessary.

The housing bill also includes aid to over 400,000 mortgage borrowers with the FHA assuming up to $300 billion in refinanced 30-year mortgages. The legislation also includes government relief to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, giving the Treasury Department the authority to extend an unlimited line of credit to both institutions.

Although the bill met some opposition from Bush and other Republicans earlier this month, the president announced last week that failing to pass the legislation would be more detrimental to the financial system, urging Congress to send the legislation to his desk as early as possible.

By Erik Kevin Franco and edited by Nancy Girgis