WASHINGTON, Sept. 6, 2008
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
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Play CBS Video Video Fannie & Freddie Mar Taxpayers As mortgage lenders Fannie Mae and Freddie Mac face massive financial failures, the federal government has stepped in to help them by using taxpayer dollars. Tony Guida reports.
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(AP/CBS)
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Fast Facts Fannie & Freddie A look at the government-sponsored siblings and their role in the mortgage market.
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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.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
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See all 226 CommentsObama will change nothing. It will be business as usual in DC.
Posted by JT_Lancer at 11:42 AM : Sep 07, 2008
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Senator Obama is who we''re electing as our "agent of change", not Senator Biden.
Senator Biden will be serving Senator Obama in an advisory capacity, drawing upon his 30 years of experience in the Senate. And as Obama''s replacement, should anything happen to him during his term.
It''s going to take a LOT of intimate first-hand knowledge of just how things got this way, if you want to begin fixing things, and Senator Biden has been around long enough to know that convoluted history.
The Obama-Biden arrangement sounds very wise to me (as opposed to picking a totally unknown half-term Governor with major issues pending as your key advisor and possible replacement).
Even if you were right that all politicians, of either party are basically the same (and I really don''t believe that) it would STILL be better if the Democarats were given a turn this time around, since allowing one party too much time in power has never been a good thing for the American people in the long run.
Even if one IS as bad as the other, it''s still time for a change of political parties in the White House.
The Dem''s couldn''t possibly do any worse than Bush has done, or than McCain will do.
And Obama will? He picked a Washington insider as VP, didn''t he? Hardly an agent for ''change''.
Obama will change nothing. It will be business as usual in DC.
Obama''s policies are more of the same tired *** we have been hearing out of Dems AND Repubs for decades - more government intervention into all of our lives will solve every malady. Well, it doesn''t quite work that way.
"So, McCain AND Obama favor a taxpayer funded bailout of these two companies - a bailout that is happening under the Bush administration and a Dem majority Congress."
Posted by JT_Lancer at 11:12 AM : Sep 07, 2008
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I hear Republicans use that phrase "Dem majority Congress" or "Democratic controlled Congress" a lot lately.
The truth of the matter is that the Republicans have had majority control of the Congress from 1995 through 2006 - an unbroken span of 11 years.
ONLY during the last two years have the Democrats had "supposed" control of the Congress by a 1-member margin of 51-49.
One of those 51 "Democrats" is actually now-Independent Senator Joe Lieberman, John McCain''s best buddy.
If you don''t count Lieberman as a Democrat (and he obviously shouldn''t be) then it''s been 50-50 for the last two years.
So - 11 years of consecutive Republican Congresses, followed by 2 years of a 50-50 split Congress.
If Congress has been a failure and is to blame for the sorry state this country is in right now, then the blame needs to be laid squarely at the foot of the Republican Party.
For 13 years now the GOP has been leading this country down "the wrong path".
It''s time for a change, and that change will obviously NEVER come from Republicans - they like things just the way they are right now - the way THEY have made it.
McCain won''t change a thing. He hasn''t in the past 25 years, and he won''t in the next four years either.
Yep, and that will ALWAYS be the case, no matter which party is in office.
As long as the state has so much power over the lives of Americans, corporations AND other special interest groups will lobby the politicians for favorable treatment, at the expense of someone else.
As they say, "you get what you pay for." We have the finest congress money can buy!
Please try to get your facts straight. You will recall that the s & l crisis was precipitated by run-a-way inflation during the Carter Administration. But, sadly, there are plenty of "fat cats" in both parties.
Posted by JT_Lancer
---"Well here we are again and the solution is the government will fix it...please give me a break."---
Posted by mcdonaj3
LOL I''m starting to see that - the worst part is when people pick up on that and then they insult us for it by calling us ''cynical'' . . . BOO!
Posted by DaShortRound
It really is welfare for the rich, and it seems to happen in every Republican administration. It makes me sick because there''s like no incentive for them to ever change.
I guess the flipside is that the Dems over-regulate and stifle the economy.
If either really wanted to be a change agent, would''t the new idea be that laissez-faire for business is good, but that it requires us to be better able to pick up on signs of danger? Maybe we should only give aggressive people enough leash such that we still retain control (?)
I don''t know . . .
Does anyone STILL think there is a dime''s worth of difference between these two corrupt parties?
If you think they''re really ''working for you'', you are a fool.
They are working for themselves and their own preservation, the American taxpayer be damned.
This is another great example of how Bush and the GOP never keep their promises, like promising "Small Government" - and "Getting government off the backs of the people".
Now the government (in this case meaning "We, the taxpayers") are going to buy more than $5 TRILLION worth of mortgage paper, much of it worthless, and government is going to "manage" it all.
Is this the GOP''s idea of "small government"? Is this "getting government off people''s backs"? Is this an example of GOP "fiscal responsibility? It''s the exact opposite!
For the past 8 years yhe rich con artists have been protected from any "regulatory oversight" by Bush and the GOP, who gut federal regulating agencies and then put their own corrupt, fat-cat business buddies in charge of them - they walk away with every dime they made by creating this mess, while the "little people" get to pick up the tab for cleaning up this greed-driven disaster, as usual.
Does anybody see anything wrong with this picture?
Do we really need more of this kind of "leadership"?
McCain isn''t a bit different than Bush, who he''s supported 95% of the time, over the past 8 years.
Posted by whatwhy001
He''s delusional to think he''s somehow better than Palin when it comes to purity from influence - what a joke.
Any wonder polls are tied, and the full effect of the RNC convention hasn''t even been measured yet?
PS Anybody watching CNN - that stuff about foreign investors not wanting to lend us money totally went over my head, although Ali explained it well . . . I just didn''t understand. Anybody catch that?
John McCain helped the Savings and Loan industry kingpin Keating swindle the American taxpayer, and we had to bail out the fatcats.
Now, just as McCain runs for president, we have to bail out the fatcats again, thanks to Republican mismanagement, corruption, and fraud.
I''m getting tired of bailing out fatcats just because rich Republicans tell us to.
The Republicans aren''t like us. They''re like Charles Keating.
Vote for someone who relates to your problems.
John McCain doesn''t have to worry about his retirement.
He married it. And he never earned a *** thing in this life--all he has, he received by privilege.
Republicans must love social welfare - as long as its not for fellow Americans.....
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