U.S. Government Near Deal on Fannie, Freddie

The Bush administration is working weekend bailout of Fannie mae and Freddie mac, two of the biggest players int he mortgage Market.

The WSJ wrote:
WASHINGTON -- The Treasury Department is putting the finishing touches to a plan designed to shore up Fannie Mae and Freddie Mac, according to people familiar with the matter, a move that would essentially result in a government takeover of the mortgage giants.
The plan is expected to involve putting the two companies into the conservatorship of their regulator, the Federal Housing Finance Agency, said several people familiar with the matter. That would mean the government would take the reins of the companies, at least temporarily.
It is also expected to involve the government injecting capital into Fannie and Freddie. That could happen gradually on a quarter-by-quarter basis, rather than in a single move, one person familiar with the matter said.
In addition, Treasury's plan includes a top-level management shakeup at both companies, according to people familiar with the plans. Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts eventually.
Any move by Treasury would represent perhaps the most significant intervention by the government in the financial industry since the housing bust touched off turmoil in the credit markets a little more than a year ago. From the $168 billion economic-stimulus package in February through the bailout of investment bank Bear Stearns Cos., the Bush administration and the Federal Reserve have taken an increasingly aggressive stance in responding to what has become one of the worst financial crises in decades.
Fannie and Freddie are vital cogs in the U.S. housing market. Their troubles have threatened to worsen the bursting of the housing bubble, which has led to a surge in foreclosures. (See related article.) A Treasury intervention could help Main Street borrowers by keeping interest rates on mortgages lower than they would be in the event of continued instability.
The Treasury's emergency powers to backstop Fannie and Freddie, which it won as the result of legislation passed by Congress in July, last until the end of 2009. A decision about their future role could be handed off to the next administration and the next Congress.The woes of Fannie and Freddie mark a remarkable comedown for two of Washington's most powerful and feared institutions, known for their financial clout and no-holds-barred lobbying prowess. Fannie and Freddie shares, which were up during the regular session Friday, dropped 25% and nearly 20% respectively in the after-hours session.