The two companies account for nearly half of the outstanding mortgages in the US, and have lost billions of dollars during the US housing crash.
The most recent figures show about 9% of US homeowners were behind on their payments or faced repossession.
The federal takeover is one of the largest bail-outs in US history.
'Comprehensive action'
As part of the changes, the management of the two companies will be replaced while the firms will be given access to extra funding to support their business going forward.
Treasury Secretary Henry Paulson said the government was intervening in the wider interests of the financial system and of taxpayers since the financial position of the two firms was fast deteriorating.
He added that the two firms' debt levels posed a "systemic risk" to financial stability and that, without action, the situation would get worse.
"We examined all options available and determined this comprehensive and complementary set of actions best met the objectives of market stability, mortgage availability and taxpayer protection," he said.
"Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a failure of either of them would create great turmoil in financial markets here and around the globe."
The move is intended to keep the two companies afloat, amid fears that either could go bankrupt as borrowers default on their home loans.
The two firms will be administered by the Federal Housing Finance Agency until their long-term future is decided.
The Congressional Budget Office has said such a move could cost up to $25bn but Mr Paulson said there was no reason why taxpayers should have to directly foot the bill.
Funding guarantee
Together, Freddie Mac and Fannie Mae own or guarantee about $5.3 trillion (£3 trillion) of mortgages.
But they have made a combined loss of about $14bn in the past year and officials were worried that they would no longer be able to continue functioning if such losses continued.
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- Manatee_man
- added this
- added September 07, 2008
- flag
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what a farce! the people who helped create the problem get to keep it and get back any money they lost, paid for by those of us who read this and those too stupid to read. What's worse is that congress handed to them.What's even worse than that is that they keep getting elected. Hmmmmmmmmmmmmmmm.
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- phoenixtoo
- 4 months ago
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This is just another band aid placed on the festering wound we call our economy.
Soon the gangrene will set in and an amputation will be required.
Good luck my fellow citizens!
Ride on!
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If the Fed is running out of money (or out of money, as some will argue), how is this going to help??
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Yet somehow, this bailout helps the UK markets immensely. "The intervention helped soothe market fears over the fate of the two companies, which own or guarantee more than five trillion US dollars (£2,800bn) worth of mortgages between them."
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I'm sure my numbers are off a bit, however:
- The US economy, specifically its GDP, is around $12-13 Trillion in size, annualized
- Our pre-existing National Debt stands at around $10 Trillion or so
- With these announced takeovers, the US Government (read: the taxpaying public) assumes Fannie's and Freddie's debt obligations of around $5 Trillion
Adding these numbers, $10 Trillion + $5 Trillion = (~ $15 Trillion) in aggregate debt, to our approximate GDP, and you get a liability exceeding the assets of around $2-3 Trillion.
I'm not an economist, but doesn't this action place the Sovereign Government of the United States into insolvency? Read: the US in now technically bankrupt.
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Keep an eye on the governments credit rating. There were rumblings about Mooneys lowering the govt. rating. If that happens any gains in the markets from this takeover will be wiped out plus some. Hang on folks. It's going to be a bumpy ride.
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- pissedoffinarkansas
- 4 months ago
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How is this not at the top of current news?
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- rudiecantfail
- 4 months ago
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This is another cog in the whell for the failure of the GOP to manage the nation as a national business!
Bushes tax cuts for the past eight years called "trickle down, supply side economics" have not worked?
The wealthy have prospered enormously while the middle class has fallen away!
McCain/Palin proposes to continue the Bush cuts by even larger margins- and once again the middle class will be left out!
This is compounded by the hypocritical fact that the mortgage industry and the banking industry is bailed out from the lack of federal oversight in the subprime scandal! And who is left to pay this enormous bill due to lack of government oversight!We - the middle class!
The GOP battle cry-
socialize the national debt and privatize the national wealth!I personally witnessed video clips of countless GOP senators and reps give speeches in Washington during Bushes (W) early years. " No federal oversight is required of the mortgage industry!" It’s not governments job to watch- scrutinize the mortgage industry!"
This is yet part of the overall failure of the GOP party to manage the nation as a equitable venture and promote equity and fairness for all the voting demographics of The United States.
The GOP has failed miserably- McCain and Palin are not the solution they are the problem!
The most important misdirection the Republicans must continue to sell us is that they, not the Democrats, are better for the economy, for business, and for individual workers.
As reported in the NYT on August 31, 2008 in "Is History Siding with Obama's Plan?" Alan Blinder, professor of economics at Princeton, wrote about yet another in a long line of academic economic studies (this one by Larry M. Bartels, a political science professor at Princeton) that confirm that Democratic administration have been far better for business, the economy, and the individual since at least 1947!
