U.S. plan for Fannie, Freddie to hit shareholders: Takeover announcement expected today

by dunkelberg | September 6, 2008 at 10:52 pm

572 views | 11 Recommendations | 10 comments

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.

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Milieunet

flagged this story as Good Stuff

at 23:39 on September 6th, 2008

dunkelberg, I like this story. It's good stuff.

In fact Feddie, Fannie as well as the USA are bankrupt

Emilio Lizardo

flagged this story as Good Stuff

at 05:49 on September 7th, 2008

I like the way they did their best to handle this nice and quietly over the week-end ...

Fannie, Freddie Capital Concerns Prompt Paulson Plan (Update1)
Sept. 7 (Bloomberg) -- Treasury Secretary Henry Paulson decided to take control of Fannie Mae and Freddie Mac after a review found the beleaguered mortgage-finance companies used accounting methods that inflated their capital, according to people with knowledge of the decision.

Paulson will hold a press conference at 11 a.m. today in Washington, according to a statement. Morgan Stanley, hired by the Treasury to probe the companies' finances, concluded the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings are confidential.

Fairbanks

at 07:52 on September 7th, 2008

They could have attracted even less notice. They could have held the news conference next to the dumpster in the parking lot behind Denny's at six Sunday morning.

bill hicks

at 06:05 on September 7th, 2008

The only people for this is the corrupt democratic congress and the self serving Bush administration.

bill hicks

flagged this story as Good Stuff

at 06:06 on September 7th, 2008

dunkelberg, I like this story. It's good stuff.

Christina 123

flagged this story as Good Stuff

at 08:08 on September 7th, 2008

dunkelberg, I like this story. It's good stuff. Looks like it's happened, dunkelberg!

[q url="http://www.guardian.co.uk/business/2008/sep/07/freddiemacfanniemae"]

The US government today announced the biggest financial bailout in the country's history as it took troubled mortgage giants Freddie Mac and Fannie Mae into temporary public ownership to save them from collapse.

The US treasury secretary, Henry Paulson, said the Federal Housing Finance Agency, hitherto the two companies' regulator, would henceforth run the companies in a state of "conservatorship" and the two chief executives would be replaced by new men.

Paulson had briefed presidential candidates Barack Obama and John McCain over the weekend about the plan. McCain gave it his immediate backing but Obama said he would reserve judgment until he saw further details, adding that determining the future of the companies would be a top priority if he won the White House.

"We have to protect taxpayers and not bail out the shareholders and management," he said.

The plan received the full backing of the Federal Reserve chairman, Ben Bernanke, and financial markets appeared likely to be cheered by the news. The move helped put a prop under one part of the financial system that had been looking particularly shaky for several months.

Rumours of the move on Friday were sufficient to push shares up on Wall Street after the London stock markets had ended a bad week by shedding another 2.25% to close at 5,240.7.[/q]

henry birkenbine

at 09:28 on September 7th, 2008

They really have no choice. Too many crooked hands in the cookie jar. Everyone will get exposed in an election year. Reminds me of cannons to the left of me, cannons to the right of me except it is crooks on the left, crooks on the right. At least they have something in common.

foneman30

at 12:56 on September 7th, 2008

Concise report.

Emilio Lizardo

at 17:00 on September 7th, 2008

U.S. seizes Fannie and Freddie
Treasury chief Paulson unveils historic government takeover of twin mortgage buyers. Top executives are out.
Last Updated: September 7, 2008: 8:28 PM EDT

NEW YORK (CNNMoney.com) -- Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.

The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices.

The sweeping plan, announced by Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.

"A failure [of Fannie and Freddie] would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said at a press conference in Washington. "And a failure would be harmful to economic growth and job creation."

Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500), which were created by the U.S. government, have been badly hurt in the last year by the sharp decline in home prices as well as rising mortgage delinquencies and foreclosures. All told, the two firms have racked up about $12 billion in losses since last summer.

On Sunday, officials stressed that both Fannie and Freddie will be open for business on Monday morning, although the firms will have undergone a dramatic facelift by then.

Freddie CEO Richard Syron and Fannie CEO Daniel Mudd will no longer run the agencies, while the FHFA will assume control of the boards. Regulators took care not to foist blame on the two executives, adding that they would stick around to help with the transition.

René

at 22:44 on September 8th, 2008

who authorized this? Does this mean we the people now own Fannie Mae and Freddie Mac? Do we the people now own the mortgages on all these over-priced homes? Who holds the notes?