Posts Tagged “Freddie Mac”
Posted by: Joshuah in Economics, tags: Bank Of New York, Fannie Freddie, Fannie Mae, Federal Reserve, Federal Reserve Bank Of New York, Financial Collapse, Freddie Mac, Ginnie Mae, Home Loan Banks, Housing Finance Companies, Mortgage Backed Securities, Small Business Loans, William Poole
Source: Bloomberg.com
The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.
“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
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Source: MarketWatch
U.S. stock futures leaped Monday after the government seized mortgage giants Fannie Mae and Freddie Mac, guaranteeing that trillions of dollars in mortgage-backed securities won’t default anytime soon and triggering hopes that banks will resume lending to both customers and each other.
S&P 500 futures rose 38.1 points to 1,279.20 and Nasdaq 100 futures rose 41.25 points to 1,811.25. Dow industrial futures climbed 273 points.
U.S. stocks finished last week with steep losses, with the Dow industrials losing 2.8%, the S&P 500 dropping 3.2% and the Nasdaq shedding 4.7% after a string of profit warnings and gloomy economic indicators around the world.
Moves to shed risk came to a halt on Monday as the U.S. government stepped in to run Fannie Mae (FNM), the giant mortgage buyers.
“As house prices, earnings and capital have continued to deteriorate, Fannie and Freddie’s ability to fulfill their mission has deteriorated,” said James Lockhart, the head of Federal Housing Finance Agency which will now oversee Freddie and Fannie.
The two companies will be run by the government indefinitely, with the two current chief executives to be replaced and the government investing up to $100 billion in each firm to keep them solvent. Treasury will receive warrants to purchase common stock of each GSE representing 79.9% of the common stock.
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Source: FT.com
The US government on Sunday seized control of the troubled Fannie Mae and Freddie Mac mortgage groups in what could become the world’s biggest financial bail-out.
The government’s move, its most dramatic since the start of the credit crisis, is aimed at ensuring the two groups’ woes do not cripple the country’s housing market or worsen to the point that they fail and send shockwaves through global markets.
While the Bush administration stopped short of using the word “nationalisation”, analysts said the moves amounted to de facto government control if not full ownership. Fannie and Freddie have $5,400bn in outstanding liabilities and guarantee well over half of all US mortgages.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” said Hank Paulson, US Treasury secretary.
In a sign of the magnitude of the decision, Mr Paulson briefed presidential contenders Barack Obama and John McCain, as well as President Bush and senior members of Congress ahead of the announcement.
As regulators took charge of the companies, the government said it had agreed to inject up to $100bn in each of them as needed to ensure they meet their debts. In addition, it would start buying mortgages backed by these companies and extend an unlimited liquidity facility to them until the end of next year.
The chief executives of both groups are to leave under the new arrangement though both have agreed to stay on to oversee the transition.
Shares in the two companies will continue to trade but shareholders face the prospect of massive dilution. Bondholders would have their assets underpinned by the US government support.
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Source: BBC NEWS
US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say.
Treasury Secretary Henry Paulson will outline government plans at a news conference at 1100 (1600 BST).
The move to shore up the shareholder-owned firms, which hold or guarantee half the US mortgage debt, would be the US’s largest ever financial bail-out.
In July, Congress approved a plan aimed at offering them more liquidity.
This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.
‘Management told’
On Saturday, a senior politician, Barney Frank, chairman of the House Financial Services Committee, said US Treasury Secretary Henry Paulson had told him the government would use its powers to ensure the continued and stable functioning of the companies.
The Washington Post, quoting senior administration sources, said the firms would be put under a legal status known as “conservatorship” which would greatly reduce the value of the two companies’ common stock.
BBC Business Editor Robert Peston
This is an event of profound significance for the global economy
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Other securities - including company debt and preferred shares - would be guaranteed by the government, the paper added.
The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.
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