The federal government is taking over locally based mortgage giants Fannie Mae and Freddie Mac in an unprecedented, publicly funded effort to spare the housing and financial markets from further collapse, officials announced Sunday.
“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,” Treasury Secretary Henry Paulson said about the federal rescue, which could cost taxpayers hundreds of billions of dollars.
The federally backed mortgage houses, which together own or guarantee about half of the nation’s home loans, have been foundering in the wake of a subprime-lending crisis that has triggered a historic number of mortgage defaults.
The government’s move is expected to inject confidence into the secondary mortgage markets, which have been crippled by the shaky financial standing of Fannie and Freddie, thereby freeing up mortgage money for homebuyers.
“Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth,” President Bush said Sunday.
Both companies will be placed under the control of the Federal Housing Finance Agency, a body created by Congress this summer to regulate them.
Homebuyers and homeowners may see little immediate change as a result of the government’s move, said Stephen Fuller, director of George Mason University’s Center for Regional Analysis, but failing to move could have been disastrous.
“I have to think that it’s a lot like what you see on Inauguration Day — nobody notices that we’ve changed governments,” Fuller said. “But had these two mortgage companies been allowed to fail, the hoped-for recovery of the housing market would have been set back months or even years.”
Donna Evers, broker and owner of Evers & Co. Real Estate in the Washington area, said she was reserving judgment about whether the federal takeover would ultimately benefit homebuyers.
“It’s too hard to tell right now,” she said. “If the government keeps in mind what people need, everything will be fine. If they put too many restrictions on the mortgages, we’re going to have a worse situation than we have now.”
Locally, the effects of the move on the approximately 10,000 combined employees of the District-based Fannie and McLean-based Freddie were unclear.
“We hope and expect that the vast majority of key professionals will remain in their jobs,” Paulson said. Federal Housing Finance Agency Director James Lockhart said the businesses would open as normal this morning.
Both companies are among the largest donors to charitable organizations in the Washington area. It is not clear what the takeover will mean to the firms’ support of community organizations.
Fannie and its foundation have contributed more than $100 million to Washington-area organizations over the past five years, including money for school infrastructure and to combat homelessness, according to the company.
Freddie and its foundation have made nearly $130 million in contributions in Washington since the company’s inception, including $3.4 million for Wednesday’s Child, a program to help find adoptive homes for foster children.
