GOVERNMENT TAKEOVER??

Gov't may soon back Fannie, Freddie
Friday September 5, 10:06 pm ET By Alan Zibel, AP Business Writer


Gov't may soon back troubled mortgage finance giants Fannie Mae, Freddie Mac
WASHINGTON (AP) -- Fannie Mae and Freddie Mac are expected to be taken over by the government as soon as this weekend in a bold move designed to protect the mortgage market from the risk the companies could fail, a person briefed on the matter said Friday night.
Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.
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 take over the troubled companies in a process known as conservatorship.
The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.70, or 24 percent, to $5.34. Freddie Mac's shares fell 95 cents, or almost 19 percent, to $4.15.
The news also 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.
Fannie Mae and Freddie Mac, the nation's largest buyers and backers of mortgages, 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 say they have enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
Still, many in Washington and on Wall Street hadn't expected Treasury Secretary Henry Paulson to intervene unless the companies had trouble issuing debt to fund their operations.
This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.
Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.
Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages -- almost half the nation's total.
Representatives of Fannie and Freddie declined to comment on the government assistance plan.
Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment on the story saying, "We are not going to comment on rumors."
Treasury recently signed a contract with Morgan Stanley to investigate the financial position of Fannie and Freddie, with help from the Federal Housing Finance Agency, the new regulatory body created by Congress to oversee the mortgage giants.
Asked if an announcement could come soon, McLaughlin said, "We are making progress in the work with Morgan Stanley and FHFA." A spokeswoman for the FHFA also declined to comment.
Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.
He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange was president of the Federal Reserve Bank of Boston in the early 1990s.
Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report.

>>and their shareholders virtually wiped out, Under a conservatorship, most if not all of the remaining value of the common and preferred shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers.

WELL, there's $200B in mkt cap gone? and they hold what $T in loans? what does this do for our bonds? US $$ FNM FRE hold 1/2 AAAAAALL home loans...so with GOV running new loans will be easy? We know how well the GOV runs things....

I suspect NOT the things a RALLY is built on, you could say PHEWW at least its over...LOTS AND LOTS of people had shares...WIPED OUT...was supposed to be SAFE!!!!

One could say..PHEWWWWW this IS THE BOMB NOTHING ELSE could be lurking......let s party? sad party

FRIEND told me they now someone laid off this week, WHERE? WACHOVIA commercial lending....pretty much "shutting it down..." hey cpmmercial loans help grow the economy??????