The U.S. government has taken control of two large companies that finance much of the U.S. housing market.
U.S. Treasury Secretary Henry Paulson announced the takeover of Fannie Mae and Freddie Mac Sunday. The companies will have more access to government funds, and the chief executives will be replaced.
Paulson did not estimate the final cost of the plan, saying only that
the total will depend on the lender's business results in the days
ahead. He also did not say how long the takeover would last.
President George Bush issued a statement saying reforming the lenders'
business practices is critical to the health of the U.S. financial
The government says the takeover is an emergency move to keep the
companies from collapsing under billions of dollars in losses from the
downturn in the U.S. housing market, and to allow them to keep raising
money to finance loans.
Under the takeover plan, the Treasury will buy a starting sum of one
billion dollars' worth of stock in each company and more as needed. It
will provide short-term funding to the two companies and 12 federal
home-loan banks. It will also buy mortgage-backed debt from Fannie Mae
and Freddie Mac on the open market.
The Treasury secretary said Sunday that the two companies are so large
and interwoven in the U.S. economy that their failure would cause great
turmoil in domestic markets and those around the world.
U.S. Federal Reserve Board Chairman Ben Bernanke strongly endorsed the plan Sunday.
Fannie Mae and Freddie Mac own or guarantee nearly half of the trillions of dollars in housing loans in the United States.
The private companies were chartered by Congress to support the housing
market, and therefore were seen as having the backing of the
government. That allowed them to borrow funds at favorable rates, even
though they are both profit-making entities answerable to shareholders.