WASHINGTON: The US government has taken control of troubled mortgage finance giants Fannie Mae and Freddie Mac, effectively wiping out shareholders' interest in the publicly traded companies.
The regulator of the two companies, the Federal Housing Finance Agency (FHFA), will manage the two companies on a temporary basis.
The takeover is the second rescue bid engineered by the US Treasury Department in little more than six weeks, and comes as confidence in the firms' ability to keep operating amid a deepening housing crisis continued to erode.
Treasury Secretary Henry Paulson and FHFA Director James Lockhart, regulator for government-sponsored enterprises (GSEs), called a news conference yesterday to spell out the latest rescue effort.
Federal Reserve (Fed) Chairman Ben Bernanke said he strongly endorsed the decision to place the two firms into "conservatorship".
"These necessary steps will help strengthen the US housing market and promote stability in our financial markets," Bernanke said in a statement.
Federal Bank regulators, including the Fed, Federal Deposit Insurance Corporation, Office of the Controller of the Currency and the Office of Thrift Supervision, said a limited number of smaller banks have holdings that are significant compared to their capital.
In a joint statement the regulatory agencies said: "They are prepared to work with these institutions to develop capital-restoration plans pursuant to the capital regulations."
The announcement followed an intense round of meetings on Friday and Saturday with directors and top leaders of the GSEs, who are expected to be dismissed after having come under stiff criticism for their high pay and management shortcomings.
The two mortgage firms are a vital cog in the US housing industry because they own or guarantee almost half the nation's $12 trillion in outstanding home mortgage debt.
The housing sector will have difficulty recovering from its deepest slump since the Great Depression unless Fannie or Freddie are stabilized and able to continue buying mortgage loans and packaging them into securities sold around the world.
(China Daily 09/08/2008 page1)