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!