U.S. Takes Over Ailing Mortgage Lenders

Heads Of Fannie Mae, Freddie Mac Replaced; Companies Placed Into Government Conservatorship

(CBS/AP)  The Bush administration, acting to avert the potential for major financial turmoil, says the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.

Officials announced that the executives of both institutions had been replaced.

Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Treasury Secretary Henry Paulson says the actions were being taken because "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."

The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

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

The takeover follows a report Friday 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.

Sen. Joe Biden said the government's rescue of the big mortgage companies Freddie Mac and Fannie Mae should not mean bailing out shareholders at the expense of taxpayers.

The Democratic nominee for vice president says it is important to help homeowners and make sure the two companies still are in a position to keep making loans.

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.

[wardoglrs]

The government doesn''t have the authority to bail banks and or businesses out of there jam. McCain and Obama support bailing them out and that''s proof enough that they are not qualified to lead. You wanted change and there not it.
If you understood the constitution and most never even read it you would see this and you would have your Freedom and Liberty and not this corp welfare

[samthetvcat]

---"The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious."---

I don''t think I fully grasp the concept of this whole rebundling - I guess it frees up credit. But if it''s such a vital service such that it can''t be allowed to fail, then is it appropriate for shares to be for sale on the open market? Because then isn''t their primarly obligation to push the envelope to make a profit?

It''s sort of like healthcare - how do you ever completely privatize an industry that by it''s very nature can''t be all about the bottom dollar because they''ve got a mixed social obligation?

I don''t know . . . over my head . . .

[jmurrieta1]

Just as Bill Clinton presided over the Internet bubble, so George Bush and Dik Cheney have presided over the biggest burst of the housing bubble and credit bubble in many a decade.

Bush is a congenital liar, and government attempts to pretend that this wasn''t going to happen have been given the lie by events.

And John McCain, good friend of the banking and credit industry, had 25 years in the Senate, but did nothing to avert this major loss for most working Americans.

During an 8 years when the ultra rich, like Cindy McCain, have done just fine, thank you.

For real change--Obama -08.

[samthetvcat]

---"Maybe Palin can "earmark" us out debt/financial crisis?"---
Posted by Policrypt

That''s what Barack''s apparently trying to do - all those earmarks he requested for his wife, community organizer friends, father Pfleger, and his major donors like Emil Jones went so well he''s fixing for more and more . . .

What a joke - he actually thinks he''s somehow morally superior to Palin, but nobody else thinks so except other people who think that way about themselves too. Not enough people like that to win the election . . .

[samthetvcat]

Clinton was pro-business, liked money, and was comfortable wielding aggression. Barack Obama is NO Bill Clinton . . .

[jerr11]

Another spectacular achievement for the Bush legacy!



A failed war in Iraq propped up only by cash payments to insurgents who would kill us.

A failed homeland security in Katrina.

And now, failed banks in Fannie Mae Freddie Mac.

Heckuva job Bush!

Mission Accomplished!

[hacker2xy]

CRUNCH TIME IN THE BREADLINE.. WHERE WILL YOU BE??

[hacker2xy]

Where will you be in the line? In a column last week.. Now the evidence is piling on.. and there is every reason to expect at the very least astronomical inflation in food prices within the next year.. Most significantly this problem is not confined to any one region of the world.. and the ripple effect is mind-boggling Keep in mind that the dollar is falling on the world exchanges.. and the food you buy is subject to the fluctuations of the currency exchanges.. Why? Well, simply because it may be more lucrative for global agricultural corporations to sell to the highest bidder no matter where they may be.....

[actornaught]

One of the primary architects of the mortgage crisis, Phil Gramm, is also a primary advisor and economic policy architect of John McCain''s. I find it crazyast ironic that their actions, a thinly veiled "shovel up" distribution of wealth, has resulted in more government regulation.

Neocon Hypocrisy, get to know it.

[jmurrieta1]

"Clinton was pro-business, liked money, and was comfortable wielding aggression. Barack Obama is NO Bill Clinton . . .


--------------------------------------------------------------------------------

Posted by SamTheTVCat



And Bush and Cheney and McCain are all comfortable wielding aggression, against people who have never harmed the US, just to benefit their corporate Neocon sponsors.

This is a virtue?

McCain''s just a rehash of the Bush regime. He''s fallen into line like a good soldier.

And Palin is a rabid right wing extremist who thinks that a state-sponsored church should dictate actions to everyone, even in the most intimate, personal decisions. Like a rape victim must be forced by the State to bear the rapist''s child (for the good of the State). Kind of an American Ben Laden and an American Taliban.

[jerr11]

One of the primary architects of the mortgage crisis, Phil Gramm, is also a primary advisor and economic policy architect of John McCain''''s.

Neocon Hypocrisy, get to know it.

Posted by actornaught at 12:22 PM : Sep 07, 2008




Good point!

The McCain strategy for "Change" is apparently carefully crafted by that great agent of change, Mr. Karl Rove himself and a slew of former repub establishment figures like Phil Gramm.



That''s "change" the neocons can believe in!

[hhfarm6]

This country built a house of cards over the last 20 years based on cheap food, cheap energy, and cheap credit. This allowed people to live lifestyles they couldn''t afford and speculators to profit off markets that are disconnected from reality. This house of cards is now crashing down around us. The "experts" who are refusing to call this a recession or depression are in a dream world while the rest of us are living the nightmare.

[nler1]

the new comany is called FIDEL

[missingamerica]

And more chickens come home to roost...this is what you get, when the Fed runs a policy of loose credit for years so that America finances the consumer side of the cycle with debt.

All because "trickle down" economics really is "voodoo economics" designed to transfer wealth away from "the Average American" and into that top 5%.

Yet even with that flim-flam running full bore, the Republicans were STILL greedy...they just HAD to pursue inequitable "free trade", which promptly slaughtered the production side of America''s money cycle.

I bet the people that write history books thought they had seen it all in existing human history...lolll...and then along came the Reaganites, and ever more corrupt forms of Republicans ever since.

Tsk, tsk....bad Republicans...naughty, naughty. To destroy your own nation just to enrich yourselves...

Fact is, today''s Republicans make Nero look socially responsible.

[ninjaattack]

It really makes me feel a lot better that the US government under George Bush is taking over the backbone of the mortgage lending business with a few more of his cronies. The same leadership that took us 5 days to get water and food to the people in the Superdome.

[nler1]

Privatizing Profits, Socializing Losses

[redwhtblue2]

U.S. Takes Over Ailing Mortgage Lenders
Heads Of Fannie Mae, Freddie Mac Replaced; Companies Placed Into Government Conservatorship

HOW COME IT DOESN''T SAY TAXPAYERS STUCK WITH THE BILL?

[condumbism]

McCains ticket offers reform? Why no examples John McLiar?

[hermitdave]

WHAT else could those dumb enough to stand by and allow massive election fraud to put into office a guy who could not run a business even if his daddy and a relative of Osama Bin Laden gave him the money to start it EXPECT?

[marshall_nee]

USSA! USSA! USSA!

[greg123579]

Privatize profits social losses; boy the rich have it good!!!

[lovegetpeace]

Folks,
The U.S. Government took over the 2 largest mortgage lenders. Its another form of total and complete ''bail out''.

This is proof that the FREE MARKET ENTERPRISE WORKS IMPERFECT. In 1988, government bailed the Savings and Loans industry.

China has taught us all that CAPITALISM works best under COMMUNISM where workers have almost no rights and under the FIRM control of a CENTRAL GOVERNMENT.

VIVA LA SOCIALISM VICTORY OVER CAPITALISM IN THE DIVIDED STATES OF AMERICA!

[hacker2xy]

the Japanese are holding as much as $715 billion in U.S. Treasuries, they cannot continue to bulk up he said. They are largely exposed to the decline of the dollar and its impact on their portfolio

Like any good investor, the Japanese will soon seek to diversify.. Japan is looking for a gradual way out of this overconcentration of dollar holdings, without disrupting the market....

[hacker2xy]

CHINA too will have to diversify its holdings if it decides to loosen its currency''s firm link to the dollar a move toward revaluation When that happens, investors will take their cue. You are going to see a domino effect, from the world monetary authorities, to the traders, to market sentiment, to overall investment in the U.S.

In other words, central banks will sell their dollar-denominated assets (or not buy as many), and the dollar''s value will fall. Then foreign investors in the United States will see their returns plummet and take their money elsewhere.......

[lovegetpeace]

Posted by Hacker2xy at 03:29 PM : Sep 07, 2008

The last time I say the numbers around 2006, China had 3.3 Trillions and Saudi Arabia had 5.1 Trillions of the U.S. Foreign Debt, respectively.

If China wants Taiwan, nothing USA can do. If a new Saudi Arabia dictatorship wants Israel eliminated, nothing USA can do.

THIS DIVIDED STATES OF AMERICA IS UNDER THE MERCY OF CHINA AND SAUDI ARABIA.

[lovegetpeace]

Posted by Hacker2xy at 03:33 PM : Sep 07, 2008

More than any other country in the world, Saudi Arabia diversification will have extreme impact on the dollar.

[hacker2xy]

lovegetpeace thanxs

[shanev137]

Bush just doubled the size of our government again.

[lovegetpeace]

Posted by shanev137 at 04:30 PM : Sep 07, 2008

Excellent Point! You have a high IQ!

[a8151947]

Bush and his frinds just made the tax payer pay for the pay of the CEO''s of these two companies They made millions and we paid for it. Bush is the one who shoukd be sent out of the USA for GOOD, his dad too.

[lovegetpeace]

Folks,
The Government complete take over of General Motors and the Ford Motor Company will be next.

Viva Free Market Enterprises!

[lochlan-2009]

"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."

The Bush Admin. strike again just as they did with the Savings and Loan of the 80''s. They knew banks were doing this, everyone knew. They lowered the Fed to 1% to drive people into the banks, and banks across the country all knew what to do, as their part of the scam. Give out loans to whoever. Congress made it acceptable through deregulation and just stood by and watched the whole fraud take fold, doing their part in the scam. Freddie and Fannie were the consolidators, and pushed them off on investors to get left holding the bag. Tax payers make up the difference and federally bail out both the mortgage giants and the homeowners who refinance with the new federally backed loans.

Oh, to be republican and so proud of the Bush Admn. organised crime ring.

[txgrouch2006]

The Bush Admin. strike again just as they did with the Savings and Loan of the 80''''s.
Posted by lochlan at 05:04 PM : Sep 07, 2008

THANK YOU for talking sense about the savings & loan comparison.

The savings & loans failed because they were UNREGULATED. Banks didn''t fail, the S&L''s did.

During the Clinton years, the home mortgage industry was deregulated to make them AT RISK OF FAILURE LIKE THE S&L''s did just a few years earlier.

And yes, Phil "Whiner" Gramm was right in there, making it a truly bipartisan money grab by greedy investors taking on righ risk (and HIGH RETURN) home loans, WITH A FEDERAL GUARANTEE of a bailout if their investment went sour.

WHAT A DEAL!!!! Guaranteed against loss, with a higher return due to the lower credit scores of the borrowers.

Your only mistake was blaming it on the Repulicans alone. This was a TRULY BIPARTISAN ROBBERY of the taxpayer.

[txgrouch2006]

The Bush administration is SUCH A BUNCH OF WHINERS!! The troubles with Fannie Mae and Freddie Mac are MENTAL BANK FAILURES!!! Just ask Phil Gramm - one of the sponsors of the Clinton-era legislation that CAUSED THIS FAILURE by removing the regulations that had been preventing EXACTLY THIS FAILURE FROM HAPPENING.

But remember, the economy is FUNDAMENTALLY SOUND. It is PERFECTLY NORMAL to see a massive failure of the LARGEST FEDERALLY-GUARANTEED HOME LENDERS IN THE COUNTRY.

Meanwhile, the investors are counting OUR MONEY all the way to the bank for all the loans that went bad.

Hey, regular gas is BELOW $3.50 A GALLON around here. WHAT ARE YOU WHINING ABOUT...

[txgrouch2006]

The last time I say the numbers around 2006, China had 3.3 Trillions and Saudi Arabia had 5.1 Trillions of the U.S. Foreign Debt, respectively.
Posted by lovegetpeace at 03:36 PM : Sep 07, 2008

Remmeber when the USA was the LARGEST CREDITOR NATION?

Question: WHY??? Why did we lend out so much money? Because we just got color TV''s and found out the good guys wear white hats?????

NO!!!!!!!! Because we HAD to lend money to them to fund OUR HUGE TRADE SURPLUS!!! When we were a creditor nation, we also had more exports than imports. And the foreign countries DIDN''T HAVE THE MONEY to pay for all that stuff. SO WE LENT THEM THE MONEY to buy stuff from us.

NOW THE TABLES ARE TURNED, and the rest of the world is doing the same thing to us.

The only sinister plot is - remember the hyperinflation of the 1970''s? What effect did that have on the debt the foreign countries owed to us?

NOTHING!!!!!!! The dollar amount of the debt remained unchanged. BUT THE DOLLARS WERE WORTH ONLY ONE-TENTH OF WHAT A DOLLAR WAS WORTH WHEN THEY BORROWED IT.

They got to pay us back with literally DIMES ON THE DOLLAR. Sweet! For them...

Now we''ll play the SAME GAME ON OUR OWN CREDITORS.

THANKS, SUCKERS!!!!! HAHAHAHAHAHAHAHAHAAHAH....!

[nextgenman]

I thought RINOs supported "Free market". Why the Tax Payer Welfare now?

[toolmangler-2009]

I thought RINOs supported "Free market". Why the Tax Payer Welfare now?
Posted by nextGenMan at 06:18 PM : Sep 07, 2008


This Dem says "What free market?" the game was fixed by the Admin (Big Business/Oilso that we lose and Big brother gains

[jt_lancer]

Once again, Bush has soundly defeated the fallacy that Republicans are for less government and less taxation.

Repubs are in love with big government just as much as Dems.

[marshall_nee]

More inflation.
We are so *** doomed!!!

[sistatee-2009]

"For decades, Fannie and Freddie fulfilled the American dream"

The only dreams that got fulfilled were those of the criminals who ran these companies. They got filthy rich, contributed millions into campaign coffers, and then flew off in their Gulfstream IV jets to their villas in Spain and France. What SUCKERS the American people are. First the S&L''s and now this! And it will happen ALL OVER AGAIN! Count on it.

[republic1776]

Let Obama get into office and Jimmy Carter days will be here again.
It''s a close call on whose was the worst President.
FDR, LBJ or Jimmy.

[republic1776]

The Housing prices were over inflated, like the Dot Com era. Clinton skated of back of Ronald Reagen.
Look at funky land deals the Clintons were involved in.

[marshall_nee]

Where are the GOP till die brown shirters to shout down us real conservatives, ahem I mean pinko commies.

[txgrouch2006]

Where are the GOP till die brown shirters
Posted by Marshall_Nee at 07:40 PM : Sep 07, 2008

We''re studyin'' how to spell "Obama" so we''ll be sure we''re voting for the right person come Election Day.

All together, now. One more time: O B A M A...

[txgrouch2006]

The Housing prices were over inflated, like the Dot Com era.
Posted by republic1776 at 07:38 PM : Sep 07, 2008

Yes, the Clinton years had the dotcom bubble.

The Bush years had the housing bubble and the oil bubble.

Difference being, middle clase drones like me profited from the dotcom bubble - although I lost half of what I made, I still KEPT the other half.

The housing and oil bubbles profited ONLY THE WEALTHY. Drones like me got THE SHAFT so the rich could get RICHER out of MY POCKET.

Clinton was a scumbag. Bush is just helping his buddies rob me in broad daylight.

BABY BOOMERS ALL - NO MORE BOOMERS!!!

[toolmangler-2009]

Posted by txgrouch2006 at 07:58 PM : Sep 07, 2008



Ain''t life grand!!!!

[marshall_nee]

All together, now. One more time: O B A M A...

Posted by txgrouch2006 at 07:52 PM : Sep 07, 2008

Please spare me that hell.
Ron Paul 2008!

[txgrouch2006]

Ron Paul 2008!
Posted by Marshall_Nee at 08:07 PM : Sep 07, 2008

You need to watch Repo Man again.

THINK about it. WHO ended up "driving the Malibu" at the end of the movie???

It''s raining ice cubes...

[sharncedar]

Basically, what is going on is that the value of America''s production is falling fast but the American people have a hard time coming to terms with that. So their politicians created an easy money climate to try to use credit to make up the difference between our national income and our national spending (the trade deficit). Now the credit is coming due, we don''t have anything to pay it with. We are in for some hard times quite likely.

The scary part is the total lack of understanding of this situation by Barack Obama. He has made only a few comments on the economy, and they seem to consists of some kind of "we need another stimulus" vagary. Now the stimulus was simply a national act of borrowing to try to span the gap between income and spending for Americans without even trying to pretend it was reasonable. That reveals Obama to be an idiot, a dangerous idiot, a completely clueless and dangerous idiot, without either basic integrity or common sense or economic insight. He vaguely desires another stimulus, which is indeed scary. I thought only bush was that dumb.

It''s like someone who can''t make their house payments turning to their credit cards to make this month''s payment. A "stimulus" in the sense of Obama is really a scary tactic and reveals a fool or idiot or irresponsble clown.

[iphyt4u]

Bush, Cheney, and McCain created this economic mess. And McCain goes around saying he''s going to change things. Republican welfare, let John Q. Public twist in the wind.