U.S. To Seize Fannie Mae, Freddie Mac

Two Companies Account For Half of Nation's Mortgage Debt; Would Be One Of The Largest Fed Bailouts In History

(CBS/AP)  The historic takeover of Fannie Mae and Freddie Mac, which could come as soon as Sunday, moved to the forefront of the presidential campaign Saturday as candidates and congressional leaders seized on the enormous implications for taxpayers and the economy.

Fannie Mae and Freddie Mac together hold or back half of the nation's mortgage debt, and have played an increasingly important role in the real estate market since the credit crisis started in August 2007. A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office.

Treasury Secretary Henry Paulson and two other regulators are working on a plan to put the troubled mortgage finance companies into a conservatorship, and remove Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.

The government is expected to control the two companies at least a year as it evaluates and debates whether Fannie and Freddie should remain government-run entities or be restructured in some fashion, Frank said in an interview.

At a rally in Colorado Springs, Col., Republican vice presidential nominee Sarah Palin said, "They've gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

Democratic nominee Barack Obama, speaking in Terre Haute, Ind., said, "These entities are so big and they're so tied into the housing market that it is probably true that we have to take steps to make sure they don't just collapse, because the housing market, which is already weakened, would be in even worse shape if we didn't take some steps."

News of the likely government takeover Friday followed a report by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

For decades, Fannie and Freddie fulfilled the American dream, reports CBS News correspondent Tony Guida. Consumers took out loans from banks, which in turn sell those loans to Fannie or Freddie. Then the mortgage giants repackaged those loans and sold them to investors, guaranteeing the mortgages would be repaid.

As home ownership grew universal, Fannie and Freddie prospered. Their CEOs, Daniel Mudd and Roger Syron together earned around $30 million dollars in 2007, reports Guida.

But as they fat, critics say they got greedy, underwriting too many home loans that never should have been made.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

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.

Frank said the companies' financial picture was better than Wall Street investors assumed, but "it just plainly became clear that elements of the market wouldn't' accept that."

The epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

"Any government action must help to strengthen our economy, which is suffering a crisis brought on by the administration's failure to stop predatory lending," said Sen. Chris Dodd, D-Conn., who chairs the Senate Committee on Banking, Housing, and Urban Affairs. "Any intervention also must minimize the cost to American taxpayers, and should not put other financial institutions at risk."

The crisis surrounding Fannie and Freddie promises to be a major challenge for the next president.

The role the two companies play 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.

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.

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.

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.

[omega39-2009]

Woo hoo, more corporate welfare. Bootstraps are for the poor.

[fstop100]

Executives should be forced to pay back their bonuses. Also investigate them for why this happened. They knew what they were doing. Taxpayers will pay and they will walk away with millions...Not Fair!

[marshall_nee]

Hmmm, I was wondering why the financials were rallying yesterday.

[nextgenman]

Oh look. Republican Welfare for Corporations.

I wonder how many McLiverspot/Caribou Barbie voters will defend this now?

[omega39-2009]

Oh look. Republican Welfare for Corporations.

I wonder how many McLiverspot/Caribou Barbie voters will defend this now?

Posted by nextGenMan

Lets all remember that this was a direct result of the Gramm-Leach-Bliley Act which was written and pushed through by John (the reformer) McCain''s likely treasury secretary.

[nextgenman]

Al Zimers/Caribou Barbie 08! - Keep the Bush Legacy Alive!

[a8151947]

I would hope all you that are in LOVE WITH BUSH AND OSMAM well agree with this. He has done nothing goog for the tax payer. The people that back the Republican party are sick. and you all need to help pay for wht they hve done.

[mcvet-1]

Now you folks never mind about the TRILLIONS of Tax Dollars this is going to cost you. LOOK we gave you a fire breathing bimbo here to blame those ugly old Libs for everything including Global Warning. Now relax and enjoy the show!! RNC

[marshall_nee]

We are so freaking doomed!

[mcvet-1]

Executives should be forced to pay back their bonuses. Also investigate them for why this happened. They knew what they were doing. Taxpayers will pay and they will walk away with millions...Not Fair!

Posted by fstop100 at 08:04 AM : Sep 06, 2008

BULL S#!T! The lousy fanatics in the Republican Party, ESPECIALLY McSame''s Economic Advisor should be taken out in the public square and given the Italian Treatment of FASCIST! If those Greedy Jerks do not remove regulations and laws put in place after the Great Depression for THE SPECIFIC PURPOSE to stop Predator Lending Practices, we have NO problem. I say throw the entire lot of them, ALL REPUBLICAN''S out in the Street!! They want to REFORM" their stupid Party they can do it on their OWN time! SIEG HEIL McSame

[cameo35]

...........***...MR.BUSH WHAT HAVE YOU DONE TO OUR COUNTRY???..............

[cameo35]

...........LASTEST GALLOP POLLS, OBAMA +5 AND GROWING FAST........

[starleo146]

Oh look. Republican Welfare for Corporations.

I wonder how many McLiverspot/Caribou Barbie voters will defend this now?

Posted by nextGenMan

Lets all remember that this was a direct result of the Gramm-Leach-Bliley Act which was written and pushed through by John (the reformer) McCain''''s likely treasury secretary.

Posted by omega39 at 08:27 AM : Sep 06, 200

I tell you if normal intelligent people cannot see through this administration and Mc Bush''s rhetoric I swear we are just done for. The normal under ground antics for corporation, and to heck with the people they are suppose to represent is just outrageous. If the republican are so bent on power at any cost we have to find a way to counteract them with all the might we have. This has got to stop. There attacks on anyone that get in there way has to stop, we have to get Mc Bush to stop using Obamas words Change, and it is all about you,are you kidding me Mc Bush, It is all about you and you will do anything to get it

[sepa2]

As many say socializing loss. Those who expect change in policy if Democrats come is just dreaming. Both parties are stoogers of the same interest groups.

[irliberal]

It is amazing, shocking and totally disappointing that so many Americans can actually even CONSIDER putting another republican in office after 8 years of Bush administration failure.

[mcvet-1]

This is a great move! I am sure glad we have Bush as president otherwise things would surely be dire.

Posted by gophockeymom at 08:49 AM : Sep 06, 2008

Oh Joy! A Knuckle Dragger! Yeah we all remember when we had a Democrat in office. It was terrible... living within a budget.. actually seeing your president submit a Balance Budget to Congress. Oh but having regulations and laws to prevent lenders from praying on people.. can''t live with conditions like that... Never mind that our standard of living actually went UP during that time. Now all you folks relax and watch the side show. SIEG HEIL McBush

[marshall_nee]

Welcome to the USSA.

[cg37102006]

This is a disturbing development to say the least. When will things start to get better?? they said last year that this year would be the turnaround, yet the economic news is worse than ever. Good luck with this mess, President Obama.

[mcvet-1]

As many say socializing loss. Those who expect change in policy if Democrats come is just dreaming. Both parties are stoogers of the same interest groups.

Posted by sepa2 at 09:02 AM : Sep 06, 2008

IF we return our economy to the Clinton Model, if we force law makers to be responsible enough to PAY for Tax Cuts in the budget BEFORE they give them. IF we stop allowing Lobbiest to WRITE our Laws.. If we return the Democrats to power you''d better BELIEVE things WILL be better. Now go enjoy the side show that is the McCain Champaign, WE the PEOPLE have some TRASH to take out!!

[marshall_nee]

Posted by gophockeymom at 09:06 AM : Sep 06, 2008

When did you get out? Nice timing BTW.

[mcvet-1]

This is a disturbing development to say the least. When will things start to get better?? they said last year that this year would be the turnaround, yet the economic news is worse than ever. Good luck with this mess, President Obama.

Posted by cg37102006 at 09:06 AM : Sep 06, 2008

You know there is wisdom in what you say. I guess we are so hungry for this new VERY bright young leader we seldom really consider the mess we are handing him. I believe we may be on the verge of greatness again though. I love how cool and thoughtful he is. He never just jumps up and attacks....

[misha128-2009]

Senator McCain -- Less regulation and less government (enforcement) has led us to this crisis and event. How will less regulation and less government correct this issue? Quite simply it will not. When do you propose to present real solutions to the real problems.

[iphyt4u]

Lets stock your leadership with hand picked republicans. Lets provide you with all the cash you need over an indefinet period. Lets make the taxpayers pay for everything. Another great republican Bush idea. Lets steal from our childrens futures, so that Bush and his republican friends can pay for there mistakes of the present.

[starleo146]

Maybe we won''t have to do anything, Bush and Mc Bush''s reforms will do it for us. When there pocketbook get empty maybe they will see finally just what they are doing to our country. Just please don''t do anything else till you leave,lowest unemployment 6.1 not counting the ones whose time has run out for unemployment checks, more foreclosures because of crooked lenders,food prices sky high.gas prices high,health care is abominable, education forget about it, and what do we hear from anyone in power for the last eight years, The liberal press is against us, Barack Obama this, Barack Obama that, not once saying we have done a outrageous job and here is what we will do to make it better. All we hear is attacks, name calling and more attack, while this country is going down and down and down.

[nearl4511]

I guess we all saw this comng. Expecially when it was announced that the Govt would step in "if needed".

Then there was no need to exert further effort to stand on their own.

The only bright side of this whole crisis is that it exposes the weaknesses of deregulation, limitless speculation, collusion, and market being king.

Come to think of it, these arethe exact solutions that McCain and company suggest.....yeah.....but they''re reformers.

[mcvet-1]

Then there was no need to exert further effort to stand on their own.

The only bright side of this whole crisis is that it exposes the weaknesses of deregulation, limitless speculation, collusion, and market being king.

Come to think of it, these arethe exact solutions that McCain and company suggest.....yeah.....but they''''re reformers.

Posted by Nearl4511 at 09:16 AM : Sep 06, 2008

Now you know we''re not supposed to worry about such things. Relax and enjoy the side show while your kids future goes down the Crapper!! LOL Sieg Heil McSame

[mcvet-1]

You mean preying on people. Praying is something good that prevents illness and deflects bad weather away from you.

Posted by gophockeymom at 09:18 AM : Sep 06, 2008

Okay fair enough now exactly WHAT will McSame change with his "Reforms". Isn''t His and the Republican Party''s "Reforms" how we got IN the mess to begin with. Sieg Heil McSame

[starleo146]

It is amazing, shocking and totally disappointing that so many Americans can actually even CONSIDER putting another republican in office after 8 years of Bush administration failure.

Posted by IRLiberal at 09:04 AM : Sep 06, 2008

All they care about is bring the democrats down that is what they want more than anything to heck with the country so glad Obama is above these leaches and is telling us what is wrong in this country and what he will do to try and fix it,I tell you this is a big mess and it could take years to fix it, if we follow the prescription as usual we will go into a coma for sure. Mc Bush tell the truth and stop using Obamas words on your stops. Can''t you think of any of your own.

[marshall_nee]

Just learned that J P Morgan hold 90 Trillion worth of derivatives. Man they''re going to be losing Billions for the next decade at least.

[fammam]

This didn''t happen overnight. Nor was it caused by one person. Ten years ago when I got a home loan I was told by a lender that I could afford a home that would eat up 40-50% of my income. I chose to live within my means. This has taken many years and many people who have made many poor decisions to get where we are. It is time to take personal responsibility.

[fammam]

This didn''t happen overnight. Nor was it caused by one person. Ten years ago when I got a home loan I was told by a lender that I could afford a home that would eat up 40-50% of my income. I chose to live within my means. This has taken many years and many people who have made many poor decisions to get where we are. It is time to take personal responsibility.

[starleo146]

Al Zimers/Caribou Barbie 08! - Keep the Bush Legacy Alive!

Posted by nextGenMan at 08:28 AM : Sep 06, 200

WHY???????

[sleepyric]

One poster had it exactly right. It''s all about living within your means. isn''t that the way you were raised??

[barbaraf4]

"Gov''t To Seize Fannie Mae, Freddie Mac
Two Companies Account For Half of Nation''s Mortgage Debt; Would Be One Of The Largest Fed Bailouts In History"
~~~~~~~~~~~~~~
Why? Why does the government keep bailing out these enormous corporations? They are allowed free reign with no controls and then when they are in danger of folding, the government rushes in with taxpayer money and starts slapping on bandaides. Then everyone is happy until the next time.

Get the controls on these monsters up front and have regular audits.

Between running the printing presses overtime at the Treasury Department and borrowing from China, the dollar isn''t worth the paper it''s printed on.

[marshall_nee]

No golf for the plunge protection team this weekend

[hacker2xy]

Not surprising, but I hope they don''t plan on keeping it or we can actually start to call the parties Socialist

[stephand]

Why does everybody on this board think the government caused this mess? This was the result of people getting into homes they can''t afford, taking on to much debt and thinking that home prices will go up at 30% per year forever. The republicans and democrats in Washington had very little to do with it. Stop blaming the government, the banks mortgage brokers, the CEOs, and take responsibility for your actions. If you think Obama or McCain is going to fix this you are in for a nasty surprise.

It is a shame that the Federal Reserve has to clean this up.

[republic1776]

This problem is Greed.
Our Government allowed this.
Democrats and Republicans.
Watching us being raped and now they step in and act like a super hero.

[hacker2xy]

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

[deacon20081]

Looks like Bush and Company are at it again trying to destroy our economy. McSame aka PapaSmurf and Marge Simpson aka Palin are in good company. I guess Bushes pals on Wall Street are DRUNK AGAIN huh? As for the "foreign" investors of course they mean Saudi''s.

Let''s see the Republicons explain this one away!

[marshall_nee]

Posted by stephend71 at 09:37 AM : Sep 06, 2008

But the government created these two entities.

[marshall_nee]

Well if they werent baptised they would go to Limbo and wait in the cue to be reborn.

Posted by gophockeymom at 09:39 AM : Sep 06, 2008

Poor bastardos.

[hacker2xy]

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

[stephand]

But the government created these two entities.
--Posted by Marshall_Nee at 09:39 AM : Sep 06, 2008

Yes, and the government forced people to buy those big houses they can''t afford.

[republic1776]

The Government turned thier heads.
Because they were making money out of it.
Our Politicians Are Politicians.
We need patriots

[fammam]

It is greed on the part of Americans who tried to get more than they could afford. This country belongs to the people. Face it - you make decisions everyday. Let''s start doing the right thing and stop blaming the government for everything.

[republic1776]

Of Course Big Brother will bail them out.
They have to cover up their sins

[hacker2xy]

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


Also, considering the state of Social Security, how the hell does the government expect to manage $5 trillion in mortgages?

[republic1776]

fammam,
It is the Goverments fault.
They made money out of this.
Now we pay for it.
I want Bob Barr in the Whitehouse.

[marshall_nee]

Yes, and the government forced people to buy those big houses they can''''t afford.

Posted by stephend71 at 09:42 AM : Sep 06, 2008

From the Fannie Mae website:

''Since 1968, Fannie Mae has helped more than 55 million families achieve the American Dream of homeownership''

While they weren''t forced to buy, they were certainly
encouraged to, with creation of these quasi-Socialist organizations.