Government Bailout of Mortgage Giants

July 14, 2008 12:00:00 AM PDT
Federal regulators are re-opening a bank that collapsed on FridayMonday morning the government is bailing out the housing market's two mortgage giants. On top of that, federal regulators are re-opening a bank that collapsed on Friday.

It is the U.S. government to the rescue, yet again. Treasury Secretary Henry Paulson announced plans, Sunday, to bolster Fannie Mae and Freddie Mac. These two companies either hold or back about half the outstanding mortgages in the United States. "Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," said Paulson.

The plan includes: expanding Fannie and Freddie's line of credit with the Treasury Department, giving treasury the authority to buy some stock to prop them up, and granting the Federal Reserve Bank oversight powers.

But the Fed's regulatory power can only be authorized by congress, something president bush urged lawmakers to do. "I look forward to working closely with the congressional leaders to enact this legislation as soon as possible, as one complete package," said Paulson.

This is just the latest move by federal authorities to prevent the credit crisis from spiraling out of control. In the third largest bank failure in U.S. history, the government seized Indy Mac bank on Friday.

FDIC chief John Bovenzi, who will run the renamed Indy Mac Federal Bank, promised business as usual, saying, "Customers should just view this as a change in ownership. If you have insured accounts, you have nothing to worry about."

In yet another move to protect consumers, the Fed is expected to approve a new plan later this morning that would protect future homebuyers from shady lending practices, specifically the types that led to the current mortgage crisis.


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