U.S. Announces Takeover of Fannie Mae, Freddie Mac
Embattled Mortgage Firms in ‘Conservatorship’; Treasury Plans Securities Buyback
By Neil Irwin and Zachary A. Goldfarb
Washington Post Staff Writers
Sunday, September 7, 2008
The government today unveiled a sweeping plan to take over the mortgage finance companies Fannie Mae and Freddie Mac and to use government dollars to prop up the mortgage market, taking unprecedented steps to use the public purse to try to bolster the housing and financial markets.
The two companies have been placed in “conservatorship,” a legal status similar to bankruptcy, and federal regulators have appointed new chief executives. The companies, which in recent months have funded more than two thirds of home mortgages, will open for business as normal tomorrow morning, government officials 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,” said Treasury Secretary Henry M. Paulson Jr., speaking to reporters in downtown Washington. “A failure would be harmful to economic growth and job creation. That is why we have taken these actions today.”
Paulson also announced a plan through which the federal government will buy up mortgage backed securities, the pools of mortgage loans that are traded on global markets. The initial purchase will be $5 billion, government officials said. That should directly lower the rates that American taking out home mortgages must pay. Paulson said that he does not expect the government to lose money on the purchases, however, and that there is a good chance to make money.
I know this will be big news in the D.C. area and especially in federal government offices.