US govt may take over two top lenders
Tokyo, July 11, 2008
The US government is considering taking over top US mortgage lenders Fannie Mae and Freddie Mac and placing them into conservatorship if their problems worsen, the New York Times reported, citing people briefed about the plan.
Under a conservatorship, the shares of the companies would be worth little or nothing, and the losses on mortgages they own or guarantee would be paid by taxpayers, the paper said late Thursday on its website.
The officials involved in discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in crisis, the newspaper said.
A spokesman for Freddie Mac declined to comment. Fannie Mae and US officials could not be reached for comment.
Shares in both companies have plunged throughout the week and on Thursday hit their lowest since 1991, severely limiting their ability to raise the capital they need to purchase home loans and hold down mortgage rates.
Freddie Mac shares plunged 22 percent to $8 and Fannie Mae stock lost 13.8 percent to close at $13.20.
In recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans.
Senior officials in the Bush administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies, government officials told the paper.
But that was considered unattractive because it would effectively double the size of the public debt, the officials said.
The officials also said that such a step would be ineffective because the markets already widely accept that the government stands behind the companies.
The stock prices of the two government-sponsored mortgage finance companies have been pummeled this year after soaring delinquencies on home loans resulted in billions of dollars of losses.
This has spawned speculation about whether they can withstand more losses and support housing as well as concerns that they may need to raise massive amounts of new capital to survive.
The congressionally chartered companies are considered the last bastions of support for the US housing market, which is suffering its worst downturn since the Great Depression. - Reuters