Fannie Mae and Freddie Mac, the twin companies backing many U.S. mortgages, have both seen the price of their shares collapse to just mere pennies. This Sunday (September 7, 2008), the Federal government announced that it would be taking over the leadership of the companies and extending at least $200 billion in Treasury money to help prevent the companies from going into complete collapse.
Fannie Mae and Freddie Mac together back more than $5.4 trillion in home loans, which is nearly half the home loan debt of the Unites States of America.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart announced that both Fannie Mae and Freddie Mac would be placed under a federal "conservatorship" until the two companies are on more solid footing. Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron would be replaced by Herb Allison and David Moffett, respectively. Allison was chairman and CEO of the pension provider TIAA-CREF. He also served as president of Merrill Lynch. Moffett served as vice chairman and CFO of U.S. Bancorp, then as senior adviser to the Carlyle Group.
Meanwhile, payment of common and preferred dividends by both companies would be suspended, saving an estimated $2 billion.
Both Fannie and Freddie have already lost nearly 90% of their original values since the start of this year. When Monday came, both stocks again took massive nosedives. Fannie Mae common stock now trades around $1.00/share, and Freddie Mac common stock is going at around $0.88/share.
That is a huge difference compared with prior 52-week highs of $68.60 for Fannie Mae and $65.88 for Freddie Mac. There is the debate that the SEC may shut down the stock holdings of Fannie and Freddie altogether.
How did these twin fiascos happen?
Fannie Mae and Freddie Mac together back more than $5.4 trillion in home loans, which is nearly half the home loan debt of the Unites States of America.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart announced that both Fannie Mae and Freddie Mac would be placed under a federal "conservatorship" until the two companies are on more solid footing. Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron would be replaced by Herb Allison and David Moffett, respectively. Allison was chairman and CEO of the pension provider TIAA-CREF. He also served as president of Merrill Lynch. Moffett served as vice chairman and CFO of U.S. Bancorp, then as senior adviser to the Carlyle Group.
Meanwhile, payment of common and preferred dividends by both companies would be suspended, saving an estimated $2 billion.
Both Fannie and Freddie have already lost nearly 90% of their original values since the start of this year. When Monday came, both stocks again took massive nosedives. Fannie Mae common stock now trades around $1.00/share, and Freddie Mac common stock is going at around $0.88/share.
That is a huge difference compared with prior 52-week highs of $68.60 for Fannie Mae and $65.88 for Freddie Mac. There is the debate that the SEC may shut down the stock holdings of Fannie and Freddie altogether.
How did these twin fiascos happen?
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