Treasury Department takes over Freddie Mac, Fannie Mae
In another new twist in the struggling mortgage market, the federal government has placed the country’s top two mortgage lenders -- government sponsored entities Fannie Mae and Freddie Mac -- under the “conservatorship” of the Federal Housing Finance Agency (FHFA), effectively putting the two companies under government control.
The “up to” $200 billion bailout of the organizations potentially saddles taxpayers with billions of dollars in losses.
The announcement came Sunday, as the federal government sought to stabilize the mortgage giants, which combined hold nearly 50 percent of the country’s $12 trillion in mortgages, including 70 percent of all new home loans. In the past year, the two companies have lost approximately $14 billion.
Treasury Secretary Henry Paulson told media outlets the move was meant to restore stability to the crumbling housing market, a stabilizing plan necessary to help the nation’s economy and financial markets regain their footing.
As part of the move, the federal government also will replace the CEOs and boards of directors at the mortgage giants. Fannie Mae CEO Daniel Mudd has already been replaced by Herbert Allison, former CEO of TIAA-Cref; while Freddie Mac CEO Richard Syron has been replaced by David Moffet, vice chairman of U.S. Bancorp.
The Treasury's takeover is primarily meant as a stopgap measure to keep the two companies floating until next year, when a new presidential administration will determine the long-term future of Fannie and Freddie.