U.S. plan for Fannie, Freddie to hit shareholders: Takeover announcement expected today
UPDATE: This happened as anticipated. There is more complete look at the world financial situation HERE, and I recommend it.
This is not your great-grandpa's bailout, but it is meant to reverse the worst housing market since great grandpa's Great Depression. The federal government takeover of Fannie Mae and Freddie Mac is expected to be complete and the largest such bailout in U.S. history.
By John Poirier and Patrick Rucker
WASHINGTON (Reuters) - The U.S. government plans to take over Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) and all shareholders of the two mortgage giants will take a hit, an influential lawmaker said Saturday.
The move to take control of the two companies, expected to be announced Sunday, could amount to the largest financial bailout in the nation's history, and is a bid to ward off further damage to a housing market in its deepest downturn since the Great Depression.
"I think all shareholders will be disadvantaged," Rep. Barney Frank, chairman of the House Financial Services Committee, told Reuters.
"The government will act as the new management," implying the chief executives would be ousted, according to Frank, who spoke to U.S. Treasury Secretary Paulson Friday about the plan to put the companies into federal conservatorship to protect the interest of all parties.
An industry source said the two government-sponsored enterprises were sent a letter by their regulator, the Federal Housing Finance Agency, detailing shortcomings at the companies and explaining why the federal government was taking control.
The source said the letter suggested the companies, which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, should agree to the arrangement in order to avoid the more onerous step of being placed in a receivership in the interests of debtholders.
In a separate interview with The Washington Post (nyse: WPO - news - people ), Frank said the government was expected to control the companies for at least a year as it considers whether they should remain government-run, or be restructured.