The Saint Paul Condo Blog

NAR Statement:
What the Government Takeover of Fannie Mae and Freddie Mac Means to the Housing Industry
Washington, D.C. (September 8, 2008) - The federal government’s takeover of secondary mortgage giants Fannie Mae and Freddie Mac should cause a drop in mortgage rates in the short term that benefits
home buyers, but the long-term outlook is too early to call. NAR fully supports the action of the U.S. Treasury and the Federal Housing Finance Agency.

The federal government had no choice. The capital situation of the two companies was not enough to handle the fallout from
rising mortgage defaults in the near future. In addition, investors who purchase Fannie Mae and Freddie Mac debt have lost confidence
in the two.

In a statement, NAR commended the Treasury’s action, announced yesterday, to bring stability and continued liquidity to the mortgage market. “The plan will help restore confidence in the secondary mortgage market,” said NAR President Richard F. Gaylord. “We appreciate the steps taken to calm the market, make mortgages more widely available and protect taxpayers.  We look forward to working with the administration and Congress to ensure the continued vibrancy of the secondary mortgage
market.”

Summary of What the Treasury Did and What It Means
In the takeover, Treasury placed the two government sponsored enterprises (GSEs) into a conservatorship — similar to a Chapter 11 bankruptcy — which fully protects taxpayers from conflicts of interest between taxpayers and shareholders or current management.

The federal government is authorized to take up to an 80 percent stake in the companies, will review their financial condition quarterly, and inject money into the operations as needed. That means the market for GSE securities will be treated more like Treasury obligations, which should push mortgage interest rates down. That, in turn, is expected to speed up home sales and help stabilize home prices.

The GSEs will be allowed to increase their mortgage funding over the next year and a half to help stabilize markets. Starting in 2010, the plan calls for them to reduce their portfolios.

The heads of Fannie Mae and Freddie Mac have been relieved of their duties.  Treasury selected Herbert Allison, former Merrill Lynch vice chairman, to lead Fannie Mae, and David Moffett, former U.S. Bancorp CFO, to guide Freddie Mac.

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