Mortgage giants Fannie Mae and Freddie Mac, who have backed 70 percent of new mortgages in recent months, are being taken over by the federal government in an effort to stabilize the housing market according to reports emerging from Washington D.C. The firms will be placed into conservatorship and the top executives will be dismissed.
The holders of the companies’ debt and preferred stock shares will be protected under the conservatorship plan but common stock holders can expect to see their shares drop dramatically in value. The government is looking to make conservative quarterly cash infusions into the companies rather than try to wipe the debt slate clean. The goal is to stabilize the mortgage market without a full scale tax payer bailout of the companies.
Given the shear volume of transactions these two firms are responsible for this latest development will have a dramatic effect on the mortgage market. Only time will tell if the conservative government funding strategy will be enough to keep the mortgage market afloat.