Government Will Stabilize Fannie, Freddie

A top House Democrat confirmed Saturday that the government is planning to intervene to stabilize troubled mortgage finance companies Fannie Mae and Freddie Mac.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in a statement that Treasury Secretary Henry Paulson "intends to use the powers that Congress provided it" in a law passed in July to enable Fannie Mae and Freddie Mac to keep functioning.

But Frank, who spoke with Paulson late Friday, said he did not "know the details of the proposed interventions," and a Treasury spokeswoman declined to comment.

A person briefed on the matter Friday said the government was planning to take over both companies, which together hold or back half of the nation's mortgage debt.

The intervention, which could cost taxpayers billions, was expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the companies into a conservatorship as early as this weekend.

Fannie Mae and Freddie Mac have lost a combined $14 billion over the past four quarters as a record number of Americans fell behind on their mortgages and went into foreclosure. While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

In July, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the companies if needed. Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

The Bush administration, however, may have little choice but to support Fannie and Freddie.

Their role in the U.S. mortgage market has grown dramatically over the past year as other lenders collapsed under the weight of bad subprime loans. The companies guaranteed about three-quarters of all new mortgages in the second quarter of this year, up from under 40 percent in 2006, according to the trade publication Inside Mortgage Finance.

Fannie Mae was created by the government in 1938, and was turned into a public company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

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  • by VBush Location: MHCY on Sep 7, 2008 at 11:11 AM
    Ron & Doug; Bravo! If banks are going to lend money to people with all these smoke and mirror loans, they deserve the outcome. We shouldn't have to bail them out. I say let them go out of business just like any other business that fails due to mismanagement. They will give anyone a credit card as well, and put credit limits that are so high they can never repay them. It is ridiculous to think that our government would bail any of these criminals out. That is the reason it keeps happening......they know that in the end they will not be held to account and Uncle Sam, aka the American people will bail them out again. I don't pretend to know all the details of these situations, but on it's face it is 100% wrong, I don't care what party is responsible for it.
  • by Ron Location: Merritt on Sep 7, 2008 at 09:14 AM
    Another taxpayer bail-out necessitated by the incompetent and socialist Democrat controlled Congress(but blamed wrongly on George Bush). Congress passed legislation that made it easy for deadbeats and non-qualifiers to get mortgage loans and forced the "greedy bankers" to issue the poor-risk loans. Now the very same Congress is legislating more laws that do nothing but cost the taxpayers more money. When are you sheep going to wake up and stop electing Democrats? Everything the Democrats do is meant to destroy our great country. It's time you idiots opened your eyes and realized that fact!!
  • by Doug Location: Hubert on Sep 7, 2008 at 08:49 AM
    These greedy bankers make more money in a week than I'll earn in my lifetime, and when they make risky investments the working public has to bail them out! Putting the government in control is like the blind leading the blind. Since when has our federal government been fiscally disciplined? I suspect that $25B is only the beginning of what tax payers will have to ante up. So, what about social security, the highway fund, and modernization of our air traffic control systems? Sorry, all the money went to bail out the greedy bankers who tried to enrich themselves quickly by cashing in on the housing bubble. I'm sure they're keeping their multi-million dollar homes. Hard working Americans should be getting angry. I know I am.
  • by VBush Location: MHCY on Sep 7, 2008 at 04:53 AM
    More government projects run afoul that 'we the people' will have to pay for. Socialism is going to bring us ever closer to national bankruptcy and a collapse of the free market. Anarchy is on the horizon.

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