Candidates Signal Support For Fannie, Freddie Rescue

WASHINGTON — The historic takeover of Fannie Mae and Freddie Mac, which could come as soon as Sunday, moved to the forefront of the presidential campaign Saturday as candidates and congressional leaders seized on the enormous implications for taxpayers and the economy.

Fannie Mae and Freddie Mac together hold or back half of the nation's mortgage debt, and have played an increasingly important role in the real estate market since the credit crisis started in August 2007. A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office.

Treasury Secretary Henry Paulson and two other regulators are working on a plan to put the troubled mortgage finance companies into a conservatorship, and remove Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.

The government is expected to control the two companies at least a year as it evaluates and debates whether Fannie and Freddie should remain government-run entities or be restructured in some fashion, Frank said in an interview.

At a rally in Colorado Springs, Col., Republican vice presidential nominee Sarah Palin said, "They've gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

Democratic nominee Barack Obama, speaking in Terre Haute, Ind., said, "These entities are so big and they're so tied into the housing market that it is probably true that we have to take steps to make sure they don't just collapse, because the housing market, which is already weakened, would be in even worse shape if we didn't take some steps."

News of the likely government takeover Friday followed a report 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.

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.

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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.

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Associated Press Writer Charles Babington contributed to this report from Terre Haute, Ind. and AP White House Correspondent Terence Hunt contributed to this report from Colorado Springs, Colo.

Comments

[oicnow]

This is what happens when the Republicans are in control:

http://deseretnews.com/dn/view/0,5143,700256723,00.html

[Ged2012]

By the way, the idea of government working FOR the people, such as the case at hand, has been Obama's idea for many months. Again and again he proves that he is right. That is based on the police power of the state: government has the power to interfere with private rights if it is to promote the greater good, but backs off when things improve, or else it would amount to abuse of power. This is not a socialist idea. It is a democratic idea. A socialist perspective is tyrannical control over everything, whether private or public matters.

McCain the copycat has recently said to the effect that government should get off people's backs (the GOP idea of small government). It's like saying that we vote for people to high office so that they would not in any way interfere with whatever we do even if things go bad. Now he supports the idea of government interfering with businesses if it is for the greater good.

[Ged2012]

McCain beats Obama by three points in the recent Gallup poll.

Huffingtonpost better take notice.

It just shows that we should never underestimate Sarah Palin. Her spike is largely due to white males. Not women. Unbelievable. See, they've got a crush on Sarah.

[beautifulsawn]

Should I buy house or keep renting?

[viv4311]

California's outrageous prices for home and their greed caused this housing crisis, $600,000 for a 900 sq ft CONDO ridiculous!
Than AZ and NV followed with outrageous prices for tiny condo's, than enter investors and now the
fox will guard the hen house? Great!

We taxpayers get screwed again!

[Waubay]

The word is that common and preferred stock holders will lose lots and/or be completely wiped out. Many regional banks all of whom are in bad shape in the first place hold plenty of that preferred stock. IT'S DOMINO TIME!!! Wonder if the FDIC will be able to keep up with all the bank failures? What happens when a regional bank goes down?

[boogiewoman]

Alan Greesnspan should have to pay. I'm a renter and people made me feel like a low life. I didn't take the bait. Now I see my friends scared stiff. People were preyed upon. The money was to be made and they didn't care how shadey it was. They looked the other way for 8 long years.

[WilliamNM]

Both companies have stated they were solvent. If they are not I understand the need to step in and take control to avoid the large number of homeowners from loosing their homes and the devastating effect to the overall economy.

Why did the Fed step in over the weekend? Why have Freddie Mac & Fannie Mae shareholders wiped out of their investments? Why are they not able to trade their shares out in the open market?

I hope many of them are not also the homeowners that are late on a few mortgage payments, now they can't even cash it in to recover.

With the Nevada Bank and the 13th bank this year to fail under the FDIC is the government going to step in and rescue the failing banks as well?

With the Republicans trying to privatize all aspects of government isn't this a prime example of why certain aspects like social security and prison system not be privatized.

Millions of taxpayers flipping the bill, many of them Fannie Mae & Freddie Mac shareholders paying twice. While we watch the CEO's go off to some other corporation with hefty retirement packages and early contract termination bonuses in the millions? There name should be Mudd!!!! Oh, wait it is!

[olephart]

“A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office.”

Really a good one! Did you hear the one about the traveling salesman and the farmer’s pigs?

OK, this must be the “until the election is over statement.” The Government will co-sign for 5 trillion in loans. About 2 trillion of these are suspect. Private financial concerns have already taken a 400 billion dollar bath and many others have yet to accept their losses. The Bear Sterns Bailout was 30 billion and the Fed has taken 400 billion in bad paper off the books of their Wall Street masters. The FDIC has asked Congress for additional funds to prop up failing banks holding these toxic mortgage securities. Make no mistake, this is going to cost way more than Reagan’s 600 billion dollar Savings and Loan bailout.

Here’s the catch, this paper is everywhere, it’s in China, Japan, Europe, it’s in your money market fund, your IRA, your 401k if it loses, you lose too. So here’s what they’re going to do:

Sell China, Japan, England, Russia, Saudi Arabia and anyone who has real money more Treasury IOUs.

Use the proceeds to buy up and prop up the bad mortgage debt held by China, Japan, England and your money markets funds.

They’ll do this “off balance sheet” like the S & L bailout and not count it in the yearly deficit statement. This debt will be hidden in the overall National Debt tabulations.

[leftLibertarian]

No Bailout.

Let

Them

Fail

[rationalindependent]

Many views expressed here are simplistic and ignore the impact of failure:
1) The common stock is now worthless so no benefit to shareholders.
2) Failure speeds disasters at LEH, WM, WB, GM, F, C with bigger writedowns faster. They need time to roll over their huge amounts of paper due at end of the year and find additional capital.
3) FNM, FRE paper now becomes federal paper and they can possibly negotiate terms with borrowers: reduce payments for homeowners or extend term. These MIGHT decelerate foreclosures, eventually stablize housing prices. So it does benefit homeowners.
4) all institutions are so intertwined that failure of 2 largest mortgage cos would have major repercussions on economy, dollar, which I cannot explain in a 250 line blog. Anyone who thinks they personally will not be affected by letting FNM, FRE fail pls. revisit Econ 101. This bailout is necessary at this point.
Finally, I am rather bemused at the outrage from all American people now. As I posted yest twice under Paulson article, American people are to blame too. Even now the constantly expanding credit card debt which is monstrous! Many people warned of the impending crises as early as late 2003. I know many people in financial circles who were bearish and worried where the country was headed as we have lived through many bubbles. People constantly blame corporations without personal responsibility. In a bull market everyone is euphoric, greedy and common sense goes out the door. Greed is NOT good!

[olephart]

“American people are to blame”

Millions yes but not all Americans are to blame. All Republicans are to blame, they voted for it, they believe it they deserve it. Apparently the 600 billion lost in the S&L debacle wasn’t enough proof that financial regulations are a necessary part of our society. The home buyers who jumped on the merry go round of escalating home prices did it not just to own a home but to “watch their investment” appreciate. Home owners who tapped their “equity” for more mindless spending did it for self serving instant gratification. Now with the home “equity” piggy bank busted Americans are running up their credit cards at an accelerating pace. The Republican philosophy of borrow and spend will not have a happy ending. Those not guilty of supporting the policies that brought this about and are also not guilty of participating in the debt run up free for all will inevitably be stuck with the bill.

[JackAlexander]

Why wouldn't the politicos jump on this? It's not their money, it's yours. And the entire aim is to save a big business that victimized countless 'homeowners', but won't in any way benefit those who have lost those homes. I say let them fall. The country will be better off without them. Didn't we have some monopoly laws on the books at one time? And these are monopolies....

[akryan]

The country really won't be better off without them. If you think about it most people should never be able to buy a home, especially a first one. A bank is selling a long term put bond to a buyer with little initial collateral and a uncertain cash flow for a pretty low rate. The only reason they do is they know that they can then sell those mortgages to Fannie and Freddie. Along with the FDIC they are the cornerstones of our economy. They worked fine for decades too at no cost to taxpayers. In fact Fannie and Freddie were considered one of the safest investments in the world because there was always the implicit, and now explicit, belief that if push came to shove that they would be propped up. It was the recent deregulation of the mortgage markets that put Fannie and Freddie in the position of buying mortgage backed assets that were of very low quality. I don't think you need to throw the baby out with the bath water here. Reinstitute some simple regulation and get Fannie and Freddie back to being publicaly traded companies as they were. If you want to talk about breaking them up into maybe three or four entities targeting different credit classes that might be an idea too, but don't totally discard an idea that has been so successful.

[ObamaSheeple]

You hit the nail on the head! I agree. You have to understand the sheer destruction that the Republicans have wrought on this nation. While controlling the House, Senate, Supreme Court and Presidency, they have nearly destroyed this country this last eight years. I was going to list just the major catastrophes but even that would take too long.

Conversely, didn't Hillary have some $30B plan to help homeowners. Assuming it would have worked, I do not know, you forestall the problem by helping the root of the problem created by greedy bankers. Funny how $30B or more is just fine and dandy for the Banks but not for the homeowners. Too big to fail my butt hole. Too many campaign contributions to both candidates to fail.

[tililek]

It seems to me that these entities should go thru a regular bankruptcy with the managers and investors who made so much money from their poor management should be the ones to pay, not us citizens who had no control and made no profit from it.

Why should we tax payers be expected to be liable for their greed?

[ObamaSheeple]

"...not us citizens who had no control and made no profit from it."

Because YOU citizens, that includes me, voted the pinheads (Republicans) into office and now we are reaping the rewards.

Either WE did not vote, give enough money or time, or encourage enough blacks, hispanics, young people, to vote in 2000 and 2004. By 2004 it seemed to me to be so obvious what the Republicans were doing to us, and Americans would revolt. Boy am I naive. Never underestimate the stupidity of your fellow American!

[mdmpo]

Does Sarah Palin have any idea what she is talking about? Her statement makes no sense at all. "They've become too big and too expensive for taxpayers. We'll make them smaller and more efficient." They are about to become too expensive because they we are about to inherit them. They weren't too big & inefficient, they were too greedy and risky. She makes it sound like they were just covered in red tape & need to be streamlined. We are bailing them out because the Republican administration had Zero oversight in the real estate market, even on loans they "implied" they would back. Now we are in a mess. Please, let's get serious. We all need to pray.

Sarah - go to the Fannie Mae website:

. Fannie Mae’s securities are not guaranteed by the U.S. government and Fannie Mae’s business is self-sustaining
and funded exclusively with private capital. Fannie Mae is a stockholder-owned corporation.
Our common stock is listed on the New York Stock Exchange (NYSE) and traded under
the symbol “FNM.”

[GDavis]

I'd like to know why none of our intrepid media, new OR old, has talked about this. This woman is being fed cards by someone and they can't get it right even then? Where's the dang media or are they too focused on dissecting folks parenthood to tell us how woefully uninformed not only Palin but the entire McCain campaign is?

Perhaps Graham is part of Palin's tutoring force. That would be fitting.

[cordyc]

Sarah gets to make her first serious comment and she gets it 100% wrong. She is a GWB. Has she read "My Pet Goat" yet?

Someone, explain to her that FNE and FMN are NY Listed PRIVATE corporations.

This is a typical taxpayer bailout for the rich stock holders.

Bush gutted the Justice Department and FBI White Collar Crime divisions so the loan fraudesters ran rampant across our front lawns and now we have to bail them out.

BTW, Oboma has a few bills that would strengthen our laws to further keep these greedy lenders in line.

Let's not forget that the Saving and Loan crisis was also the result of the Reagan/Bush reign. Yeah, let's cut those government department Sarah. It will ensure more misery for the middle class.

[akryan]

Thank you. Come to Wasilla AK. She is the only person in the world that could leave a city of 6000, $22M in debt after $27M in earmarks, without ANY important infrastrucural improvements. The place consists of dirt roads, box stores, and meth.

[ObamaSheeple]

"Does Sarah Palin have any idea what she is talking about?"

No! She does not! Is it not obvious by now? Neither she nor McCain have clue one about anything other than abortion and even then they are inconsistent. As long as the life is in the womb, it is sacrosanct. The nanosecond it hits the air, we can execute it or kill it if it is a gay, abortion loving, Muslim extremist, terrorist.

[RegularFolk]

Its not because the republicans failure to regulate the Real estate market. The problem is they started these GSE in the first place. Then in the 90s they forced high risk lending with sub prime mortgages and to boot Democrats and republicans have been cooking the books since the Clinton days What did the Democrats do about it? nothing.

[iambusto]

the whole concept of GSE's is wrong !!

The govt. should never have been in this business of supporting homeownership. also this "public company backed by implied guarantee of the US govt" doesnt work.

Make profits or make affordable homeownership ? which is it? cant have both.

its too late now. those companies have issued bonds for decades with the implied backing of the US govt. now saying there is nowhere its written as such is not going to work.

we got dozens of Central Govt. of many Asian and European countries that hold GSE bonds. they have to be made whole (and will be).

shareholders will be wiped out though. shorts win big on this one :)

[MetalCanuck]

THe both candidates just sold the dollar and your economic future down the hole. Ron Paul warned agaist this and he would NEVER let it happen. Too bad people do not understand this.

[leftLibertarian]

MetalCanuck: Thank you. Both major political parties are worthless.

[MetalCanuck]

Thats right, just look at this...

http://ca.youtube.com/watch?v=teXgZoZrnwQ

They are all working together.

[ObamaSheeple]

Then surely you support a rewrite of the Constitution in favor a new parliamentary form of government? I can live with that. Short of that, it's all just mental masturbation.