Government takes over mortgage heavyweights
In a rescue mission, the U.S. government announced today its takeover of government-sponsored mortgage finance companies Fannie Mae and Freddie Mac. Treasure Secretary Henry Paulson announced the four-step bail-out plan at a press conference today.
In the wake of the subprime mortgage crisis, the two companies have been responsible for
the majority of funding for banks and other home lenders.
Their troubles could cost taxpayers tens
of billions of dollars.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Paulson said. “This turmoil would directly and negatively impact household wealth, from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”
As part of the takeover, regulators replaced chief executives of both companies with two finance veterans. The former heads, Richard Syron of Freddie Mac, and Daniel Mudd of Fannie Mae, will assist with the transition.
The two companies, placed under government conservatorship, “have $5.4 trillion of guaranteed mortgage-backed securities (MBS) and
debt outstanding, which is equal to the publicly held debt of the
United States,” said James Lockhart, director of the new independent regulator, the Federal Housing Finance Agency. TRD