Washington
07 September 2008
Amid a continuing housing crisis in the United States, the Bush administration is taking over two failing mortgage firms in an effort to limit further turmoil in the sector. From Washington, VOA's Michael Bowman reports.
The last year has seen a spike in foreclosures among U.S. homeowners, falling housing values in most parts of the country, and tighter credit that has made it more difficult for Americans to acquire loans.
In recent months, the picture has grown worse with news that two mortgage giants, Fannie Mae and Freddie Mac, were on the verge of insolvency. Combined, the two firms own or guarantee close to half of all home loans in the United States.
In a news conference Sunday, Treasury Secretary Henry Paulson announced that the federal government is taking control of the firms - a move he described as necessary to avoid further financial upheaval.
"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 the financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth, from family budgets to home values, to savings for college and retirement," he said. "And a failure would be harmful to economic growth and job creation."
The Bush administration says Fannie Mae and Freddie Mac are being placed in a government conservatorship with new executive leadership. They will be operated by a government agency until their financial pictures improve and they are no longer at risk of failing.
Paulson says every effort will be made to spare taxpayers from having to assume massive financial burdens stemming from the takeover.
Most Americans secure home mortgages through private banks. For decades, Fannie Mae and Freddie Mac have made it more attractive to banks to make mortgage loans by purchasing the loans from the banks, and then selling them to private investors.
But recent years have seen mortgage loans made to millions of individuals with poor, risky, or insufficient credit - many of whom have either defaulted on the loans or are at risk of doing so. Fannie Mae's and Freddie Mac's exposure to massive financial losses stemming from the housing crisis has put them on the verge of insolvency.
News of the government takeover prompted swift reaction from both presidential candidates. Speaking on CBS' Face the Nation program, Republican presidential nominee John McCain said the move "has to be done."
"I think that we have got to keep people in their homes. There has got to be restructuring, there has got to be reorganization, and there has got to be some confidence that we have stopped this downward spiral. It is hard, it is tough," said McCain.
McCain added that the woes of Fannie Mae and Freddie Mac are symptomatic of an overall failure of Washington to tackle important issues. He said the federal government has become less effective due to what he termed cronyism and the influence of special interests and lobbyists.
His Democratic challenger, Barack Obama, also expressed support for the government takeover. But an Obama ally, Virginia Democratic Governor Tim Kaine, said blame for the financial upheaval lies with President Bush.
"It is an important step that they [the Bush administration] have taken, but they are way too late. During the Bush administration there has been a complete abdication of responsibility for regulating the nation's financial markets, and so it has come to this," said Kaine.
Fannie Mae and Freddie Mac have seen their stocks plummet in value in recent months. The federal takeover includes some government purchasing of the firms' stock and an infusion of funds to assure the firms' continued operation.
Fannie Mae and Freddie Mac are government-sponsored enterprises, which are among several financial service corporations created by the United States Congress.