Fannie Mae and Freddie Mac rescue

The U.S. government said Sunday it will take control of mortgage giants Fannie Mae and Freddie Mac and oust their chief executives.
Although immediate cash won't be provided, the Treasury will acquire $1 billion of preferred shares in each company and pledge up to $200 billion, according to a report Monday in the Wall Street Journal.
In return the companies -- which control more than half the nation's mortgages -- will be under a conservatorship and management control will be in the hands of the Federal Housing Finance Agency.
The government said that the cost to taxpayers -- which could equate to billions in losses from home loans -- would be less than the price of doing nothing.
Combined, the companies have lost around $14 billion over the past year. Both Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) purchase home loans from banks and repackage them as mortgage-backed securities that they either hold or sell to investors.
Both will modestly increase their mortgage-backed securities portfolios through the end of 2009. In 2010, their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely though national run off, eventually stabilizing at a lower, less risky size.
Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron will be replaced, but will stay on through the transition. Herbert Allison, former CEO of TIAA-CREF, has been named new CEO of Fannie. David Moffett, former vice chairman and chief financial officer at U.S. Bancorp will take Freddie’s helm. Boards for both institutions are also being replaced.
Two temporary programs, expiring in December 2009, were also announced:
The Treasury has established a new secured lending credit facility available to Fannie Mae, Freddie Mac and the Federal Home Loan Banks, serving as an ultimate liquidity backstop.
To further support the availability of mortgage financing for millions of Americans, later this month, the Treasury will initiate a temporary program to purchase Fannie Mae’s and Freddie Mac’s mortgage-backed securities to aid mortgage affordability.