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.

[noloyalisti]

The Pubs must be outraged over this act of welfare. If you don''t think we are a fascist nation, think about why the government is bailing out big banks.

[txgrouch2006]

And when the WEALTHY LOSE big money on loans, it is a crisis and capitalism needs to be "corrected".
Posted by cbsfan731 at 11:04 AM : Sep 08, 2008

Guess again. THE WEALTHY INVESTORS LOST NOTHING. The whole point of Fannie Mae and Freddie Mac is that the loans are FEDERALLY GUARANTEED against loss. In plain English, that means the gummint promises that if the loan goes sour, the gummint will TAKE MONEY FROM US to repay the investors for their losses.

IT WAS A NO-LOSS GUARANTEE. And yet, because these were high-risk loans to individuals with poor credit rating, don''t you KNOW these loans had HIGHER INTEREST RATES.

So the fat cats got HIGH RETURNS with A NO-LOSS GUARANTEE. The gummint guaranteed that WE would bail out the fat cats is they lost money. WHAT A DEAL!

Hypocrites? No. The word is DIRTY ROTTEN BANDITS.

Come on, let''s call it what it is...

[noloyalisti]

I agree with forthepeople. Let''s use our consumer power together to force the government and the corporations than run it to start helping us. Time to boycott and general strike to bring the fascists to their knees. Then it will be We the People again in the US.

[forthepeaple]

COME ON YOU GUYS, WHY DO YOU ALL STILL BELEIVE ANYTHING THAT THE GREAT MR.POTATO-HEAD SAYS.(PAULSON) WHAT A BUNCH OF ***!!

AND WHY DO YOU ALL SAY THIS. WELL WE CANT LET THEM FALL. BULL ***..THEY ARE LETTING MILLIONS OF GOOD AMERICANS FALL EACH WEEK..THEY ARE NO DIFFERANT THAT US.. THEY MADE BAD DECISIONS ON THE MORAGE MESS. AND IF YOU LOOK AT WHAT AND WHO IS GOING BAD NOW IS ALL THE ONES THIS LIEING GOVERNEMNT SAID WOULD NOT BE INCUDED IN THIS MESS THEY SAID ITS ONLY THE SUB PRIME PEOPLE. WHAT A BUNCH OF GRAP THAT WAS COMMING OUT OF THEIR MOUTHS.

DONT YOU ALL KNOW THAT MR.POTATO-HEAD JUST GOT BACK FROM CHINA( A COMMIST CONTRY) AND I WOULD PUT MY LIFE ON THAT THEY TOLD MR POTATO-HEAD PAULSON THAT HE BETTER DO SOMETHING ABOUT THE FANNIE/FREDDIE GRAP BECAUSE CHINA HOLDS MORE THAN 70% OF THE PAPER!!!!!!!!!!!!!!!!

GO AHEAD AND ASK PAULSON WHO REALLY OWNS THE PAPER OF THEM..ITS NOT AMERICANS!!!

BUT AMERICANS ARE BAILLING OUT CHINASO ASK THEM ALL THIS , WHY SHOULD AMERICANS BAIL OUT CHINA!!!! ISN;T THAT WHAT WE ARE REALLY DOING!!! YES AMERICANS ARE BAILLING OUT CHINA

WE HAVE TO TAKE ALL MEMBERS OUT OF CONGRESS/SENATORS THAT HAVE MORE THAN 6 YEARS IN OFFICE..PUT AMERICANS THAT WANT TO HELP AMERICA..PUT AMERICANS FIRST RATHER THAN THE RICH AND WALL STREET..


SO REAL CHANGE WILL ONLY COME WHEN AMERICANS WAKE UP TO THE FACT THAT THIS IS THE ONLY WAY TO CHANGE ARE GOVERMENT.

DAVID A BELANGER,VETERAN, U.S. ARMY.
[e-mail], 978-618-3105

[bombadil4]

Whether this was overall a good idea or not, don''t let the politicians and corporate news sites (like this one) fool you into thinking this is primarily for the benefit you or me. Fact is, China is holding almost 380 billion dollars worth of bonds from these lending institutions. In other words, when we buy all the junk in Walmarts from China, they (China) take the money from the huge trade surplus and lend it back to us so we can buy more junk from Walmarts. When republican fat-cats talk about our great "ownership" society, they conveniently leave out the fact that China is the principal owner. We are bending over for China for our solvency in the same way we have to bend over for our oil from the Mideast. Welcome to the future.

[noloyalisti]

The GOP believes that the role of government is to benefit the corporations and the rich. As in many fascist countries like America, it is all about the masses living to enrich the few. The few can then use their corporation money to attempt to dominate the world. It has happened many time, mostly notably in Nazi Germany.

[whitemale08]

Republicans have never been potty trained.

Everytime a Democrat cleans up the economy and takes the heat for scooping up the mess left behind Repubicans, some "personal scandel" pops up so that a Republican can come in on "character issues" and "dump" all over the American people again.

It''s sickening.

[forthepeaple]

COME ON YOU GUYS, WHY DO YOU ALL STILL BELEIVE ANYTHING THAT THE GREAT MR.POTATO-HEAD SAYS.(PAULSON) WHAT A BUNCH OF ***!!

AND WHY DO YOU ALL SAY THIS. WELL WE CANT LET THEM FALL. BULL ***..THEY ARE LETTING MILLIONS OF GOOD AMERICANS FALL EACH WEEK..THEY ARE NO DIFFERANT THAT US.. THEY MADE BAD DECISIONS ON THE MORAGE MESS. AND IF YOU LOOK AT WHAT AND WHO IS GOING BAD NOW IS ALL THE ONES THIS LIEING GOVERNEMNT SAID WOULD NOT BE INCUDED IN THIS MESS THEY SAID ITS ONLY THE SUB PRIME PEOPLE. WHAT A BUNCH OF GRAP THAT WAS COMMING OUT OF THEIR MOUTHS.

DONT YOU ALL KNOW THAT MR.POTATO-HEAD JUST GOT BACK FROM CHINA( A COMMIST CONTRY) AND I WOULD PUT MY LIFE ON THAT THEY TOLD MR POTATO-HEAD PAULSON THAT HE BETTER DO SOMETHING ABOUT THE FANNIE/FREDDIE GRAP BECAUSE CHINA HOLDS MORE THAN 70% OF THE PAPER!!!!!!!!!!!!!!!!

GO AHEAD AND ASK PAULSON WHO REALLY OWNS THE PAPER OF THEM..ITS NOT AMERICANS!!!

BUT AMERICANS ARE BAILLING OUT CHINASO ASK THEM ALL THIS , WHY SHOULD AMERICANS BAIL OUT CHINA!!!! ISN;T THAT WHAT WE ARE REALLY DOING!!! YES AMERICANS ARE BAILLING OUT CHINA

WE HAVE TO TAKE ALL MEMBERS OUT OF CONGRESS/SENATORS THAT HAVE MORE THAN 6 YEARS IN OFFICE..PUT AMERICANS THAT WANT TO HELP AMERICA..PUT AMERICANS FIRST RATHER THAN THE RICH AND WALL STREET..


SO REAL CHANGE WILL ONLY COME WHEN AMERICANS WAKE UP TO THE FACT THAT THIS IS THE ONLY WAY TO CHANGE ARE GOVERMENT.

DAVID A BELANGER,VETERAN, U.S. ARMY.
[e-mail], 978-618-3105

[afmca]

Jay Hancock of the Sun puts it in perspective.

The companies are about to receive what we can conservatively estimate will be tens of billions in taxpayer dollars. That''s not private capital. But whatever the total bill, however maddening it may be to lose again in Wall Street''s "heads I win, tails taxpayers lose" version of capitalism, the price is worth it.

Once again tax-payers do foot the bill for the either stupidity or illegality of corporate America. This is Bush''s capitalism and it is McCain''s also. All gain; no pain. The middle class gets hit once again and the corporate criminals get off. Who wants to bet that these execs also didn''t get under the table bonuses to leave?

[skyk-2009]

The men who put Wilson in office and their descendents have run the country ever since.

Posted by downtowner97 at 11:53 PM : Sep 07, 2008

Uh Huh! LOL Sparky WE, this nation, had a BALANCED BUDGET and a SURPLUS when the Fascist took over in 2000. We had REGULATIONS and LAWS on the books that prevented Lenders from using Predatory Lending Methods as well. Somehow, I don''t think going all the way back to Wilson is going to help you get away from those facts!

[tmittelstaed]

And, in another year at the height of the mess, why then it will be a fantastic time for the fiscally responsible people who have kept their credit good, to pick up a second home as a rental, when during the meantime all the home flippers will have trashed credit and won''t be able to finance a teacup.
What this housing meltdown has done is effectively taken just about all the people who''s speculation over the last decade has caused home prices to be unaffordable, and fed them into the meat grinder. Very seldom will you ever see the principle of "ye reap what ye sow" and "they deserve what they get" to be played out. The country will come out of this with the financial charlatains ruined, and the cooler heads having taken control. Who knows maybe they might even start insisting on some sound governmental fiscal policy again, instead of this rediculous deficit spending we got going now.

[tmittelstaed]

Why are so many people complaining? How does this negatively affect Joe Sixpack? On the contrary, the Joe Sixpacks out there who were financially conservative, who bought homes on 30-year-fixed and made *** sure that the monthly mortgage payment was something they could afford, and who didn''t go take out home equity loans to buy big screen TV''s and other junk, those people are doing fine. It''s only if those people bought homes in the last 4 years are they going to see negative equity in their home right now, and since they can afford the mortgage, so what? Give it 3-4 years and their equity will rise and they will be positive again. Everyone else who was financially prudent, well guess what, their home equity is a fantastic investment.
Do you know what keeping F&F solvent does? I will tell you - it keeps all the ARM mortgages out there that people are defaulting on, somewhat valuable. Thus we aren''t going to have situations where home-flippers and property speculators will get off scott free because their funding banks have simply gone out of business and abandonded the property. Instead, those banks will fail but their loans will still have enough residual value that someone somewhere is going to buy them, and the speculators and flippers will be forced into foreclosure.

[whatithink1]

Essentially Bush and Co have left this problem to the next administration, like they have left Iraq to the next administration, like they have left everything else they''ve screwed up to the next administration.

How anyone could every give them a GREEN LIGHT, and voting for McCain is exactly what that will be, is beyond me.

These people are worse than the common criminal. At least the common criminal will only steal your wallet. These people will only leave you with a wallet.

[andor3]

"We gave Ronald Reagan a chance to prove that less government was the answer, and what we got in return is a big mess."

sssshhhhhh! this is the lesson that the rich, the neo cons, and elements out to destroy American democracy do NOT want us to learn, even though it is becoming so obvious.

Still McCain, Palin and Bush and friends are going to come forward and tell us again to believe them and not what you and I see and know to be true.

[downtowner97]

In 1919, after he had voted during Christmas break to create the federal reserve, President Woodrow Wilson wrote these words: "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of of credit. We are no longer a government by free opinion. We are no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

The men who put Wilson in office and their descendents have run the country ever since.

[downtowner97]

The banks are not being taken over by the government. The Federal Reserve is a "central bank" owned by the Morgans, the Rothschilds and the Rockefellers. The FDIC is a corporation that gets a bank for free if it is unable to pay back margin loans given out by the central bank.

To better understand all this, go to Youtube and watch the Zeitgeist videos on money. The entire history of the central bank and quotes from politicians who regretted selling the country to wealthy families are well laid out here.

[lucasnico]

It''''s not less government or more government. It''''s GOOD government that matters.

That''''s been sorely lacking for about the past SIXTEEN YEARS.

Posted by txgrouch2006

no, just the past 8 !

[cg37102006]

One other comment. The really goes back to Greenspan and the advent of low interest rates. When interest rates are too low, then prices generally go higher. Low rates and high prices led to the housing bust. But the solution is really to let things go bust. I was against the Bear Stearns bailout and I am against this. This like not letting a sick person vomit. After the vomitting, the sick person gets better. These bailouts are just delaying and making worse the eventual convulsions that our debt economy must go through. Better to pay the debt sooner than later.

[cg37102006]

Umm is this legal? I thought these were private companies that trade on the stock exchange? They can just be taken over by government like this?

[shanev137]

The Bush - McCain phone call this morning:

Hey, John, how''s it going out there in Colorado Springs.

Things are not so great here John, we have to takeover some agencies with the funny sounding names, Freddie and Finnie.

John look I tried, but Paulsen tells me we have to. We can''t wait until after the election.

John we can''t wait. If we waited, then things could git worse and you will have an even tougher time trying to convince everyone that the economy is fundamentally sound.

Is Sarah there? Good, send her to the smallest towns you can find there out West, and tell her to keep telling everyone that you''re a Vietnam POW. They will eat it up. And make sure she tells everyone this whole takeover thing is a left wing media conspiracy. Those good ole boys like to hear that stuff.

Hell no John, Laura and I are sitting pretty good. The ranch is paid for and Dad has all sorts of connections in the Middle East. But thanks for your concern. How about you and Cindy?

Good, great, then you don''t have to worry about getting access to credit either.

No John, the folks back here think that Phil Gramm should stay out of this one. They don''t need his help.

Hey John is Joe there? Put him on.

Joe, the folks back here think that Phil should stay away, y''all gotta tell John that a guy who says Americans are whiners is not going to go over very well in this economic crisis. He listens to you Joe, and yeah they are whiners but we have to look like we care.