U.S. Government Take Over Of Fannie Mae And Freddie Mac
(FOX)
WASHINGTON — Saying that market conditions have made it impossible for the nation’s top mortgage lenders to sustain its loans, the Treasury Department announced Sunday the government is seizing Fannie Mae and Freddie Mac.
The quasi-government agencies’ executives have been ousted and the loans will be managed by the Federal Housing Finance Agency.
The move is intended to prevent major financial turmoil, Treasury Secretary Henry Paulson said in a press conference.
“I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions,” Paulson said. “Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing.”
Over the summer, Congress granted the Treasury Department authority to bulk up the congressionally-mandated agencies either through the purchase of stock or equity lending or by taking control of operations until the companies’ finances were steady. Treasury will buy the companies’ preferred stock and purchase its debt off the open market.
Putting the government-sponsored enterprises into conservatorship is a means to prevent the lenders from going bankrupt, Paulson said, pledging that when the takeover ends, the companies will begin to pay back the government as a means to compensate taxpayers who will be footing the billions it will cost for the bailout.
Freddie and Fannie are responsible for about $5 trillion in home loans in the U.S. Paulson said the agencies will be allowed to slightly increase their portfolios next year but in 2010 will start reducing the number of its loans.
Paulson said despite the cost to taxpayers, the takeover was unavoidable.
“Let me make clear what today’s actions mean for Americans and their families,” Paulson said. “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. 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,” he continued.
Paulson said it will be up to the next Congress and administration to decide what role these agencies should play and how much risk they should be permitted to assume, given their status as congressionally-chartered companies.
Paulson said he spoke with several members of Congress and others before Treasury decided to take this role. He received the backing of Federal Reserve Chairman Ben Bernanke.
Federal Reserve Board Chairman Ben S. Bernanke:
“I strongly endorse” the conservatorship and other actions taken Sunday,” Bernanke said in a statement. “These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets.”
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IMHO, we’re heading down a slippery slope towards larger government, with this decision…
September 7th, 2008 at 9:05 amWhat’s that humming noise? Ah right it’s all the laissez faire founding fathers spinning…
Wasn’t it government interference that led to the mortgage crisis in the first place? Something about forcing companies to stop discriminating against bad investments (poor people with bad credit history)?
September 7th, 2008 at 9:08 amMy first thought was Oh great now the government “owns” half the houses in the country. Not good.
September 7th, 2008 at 9:08 ami agree with 2 comments above. and also the car companies are about to ask congress for 50 billion bail out in loans. im pretty sure its GM,Ford and Dodge since all 3 have posted incredible losses.
September 7th, 2008 at 9:27 amGreat comments!! When the politicians embraced home ownership for all and forced companies to loan money to folks they should not have loaned to,this is the result. You can not do business with people who do not have any money. This is a big issue that as someone said is leading us down the wrong road.Many of these folks just flat out lied on the loan apps. You know at one time the banks checked with your employer etc.
September 7th, 2008 at 11:38 amLet them go bankrupt. The ones hurt if the government didnt take over, would have been the banks. It would have been a domino affect.
September 7th, 2008 at 11:49 amWhat chance do you think the government will give us our money back? Yea me too NONE. We didnt get anything back after the Savings and Loan.
September 7th, 2008 at 11:51 amLet me state this clearly … with this take over we have taken another leap toward socialism. This plan is slated to turn control back over to the private sector in a year … I will bet dollars to donuts that that is not going to happen. Once government gets it’s dirty hands on something, it never lets go. Look out, this is bad people, or should I say “comrads”.
September 7th, 2008 at 12:14 pmThis is a horrible decision by the Bush administration.
We can all get fired up about “hot button” issues that get a lot of media coverage, but this is huge - the fact that this happened during a republican administration is an outrage. Further evidence that the republican party only pays lip service to the “smaller government” mantra. This is a bigger slide towards socialism than anything an idiot liberal has done.
September 9th, 2008 at 6:54 am