How Fannie and Freddie came under full government control - Sep. NEW YORK (CNN) -- Call it a bailout, or a rescue, Fannie Mae and Freddie Mac are now firmly under the grip of the U.S. government. The widely anticipated move was the logical next step as the housing crisis continued to erode the two mortgage giants. "We have determined that it is necessary to take action," Treasury Secretary Henry Paulson said Sunday. "Our markets will not recover until the end of this housing crisis.
Fannie Mae and Freddie Mac are critical to turning the corner on housing. " (Paulson's statement) And with that, the U.S. government took control of sister companies Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), two massive public companies at the heart of the nation's mortgage system. Together, Fannie and Freddie own or guarantee more than half of the U.S. mortgage market - that's more than $5 trillion in loans. Here's how they work: Banks loan money to home buyers. Banks then use the money they get from the sale of those mortgages to make new loans.
In depth - Freddie Mac and Fannie Mae. Pressured to Take More Risk, Fannie Hit a Tipping Point - Series. Business | US takes over key mortgage firms. US President George Bush says mortgage giants Freddie Mac and Fannie Mae have been taken over because they posed "an unacceptable risk" to the economy. The two companies account for nearly half of the outstanding mortgages in the US, and have lost billions of dollars during the US housing crash. The most recent figures show about 9% of US mortgage holders were behind on their payments or faced repossession. The federal takeover is one of the largest bail-outs in US history.
It was announced on Sunday by Treasury Secretary Henry Paulson. "Putting these companies on sound financial footing, and reforming their business practices, is critical to the health of our financial system," President Bush said. "The actions taken today are temporary, and will support housing finance in the near term. " 'Comprehensive action' As part of the changes, the management of the two companies will be replaced while the firms will be given access to extra funding to support their business going forward.