WSJ Reporting Deal Near to put Fannie and Freddie into Conservatorship

The Wall Street Journal is reporting tonight that the time is almost up for Fannie and Freddie. That didn’t take long. No wonder the bill was rushed to President Bush to be signed at the end of July.

The plan is expected to involve putting the two companies into the conservatorship of their regulator, the Federal Housing Finance Agency, said several people familiar with the matter. That would mean the government would take the reins of the companies, at least temporarily.

Plans include the government gradually injecting capital into the two companies and a “top level management shakeup.”

Freddie and Fannie own or guarantee more than $5 trillion of mortgages. They have suffered combined losses of about $14 billion over the past four quarters as they make provisions for a wave of defaults. Investors worried that a government bailout would wipe out the value of existing stock, and those fears have sent the shares down about 90% from a year ago. Many U.S. banks as well as foreign governments own stock or debt in the two giants, meaning their financial woes could cause broad problems beyond the housing market.

Emphasis mine.

This breaking story has already been updated. Read more here at the Washington Post and NYTimes.

Fannie Mae and Freddie Mac to be put under control, sources say

U.S. rescue seen at hand for mortgage giants


Here’s Bloomberg; Paulson plans to bring Fannie, Freddie under government control

Reuters: Fannie Freddie shares fall after report of bailout

I’m sure there will be more stories posted all throughout the weekend.  This Fannie and Freddie takeover is something I could have never imagined when I started my career in mortgage lending 25 years ago.  When they raised the conforming loan limit several months ago and allowed F&F take on Jumbos, there were many who said F&F wouldn’t be able to survive if loan defaults continued to rise.  Firstam Core Logic says defaults will to continue to rise for at least the next 18 months.  We should now begin thinking about the FHA mortgage insurance program and their 3.5% down requirement.  That equity goes away fast during a down market.

I am heading out to the Edmonds Woodway High School Football game. I will post a link to that CoreLogic report and any updates when I return.  Link to CoreLogic PDF posted above. 

Update 2: Sunday morning press release from Paulson:

Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers

Washington, DC–

Good morning. I’m joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA. In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs – including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action.
Continue reading here.


Readers, what effect do you believe a F&F conservatorship will have on the local and national real estate market?