Feds Take Over Fannie Mae and Freddie Mac

Hoping to prevent further damage to the failing U.S. housing market, the federal government has taken control of troubled mortgage lending giants Fannie Mae and Freddie Mac. In the largest government-corporate bailout in U.S. history, the Federal Housing Finance Agency (FHFA) will assume temporary control the two investor-owned, but government chartered corporations. Congress created the FHFA in 2007, specifically to regulate Fannie Mae, Freddie Mac.

Authorized by Congress as "government sponsored enterprises" (GSEs), Fannie and Freddie currently guarantee about half of all U.S. home mortgages, totaling nearly $5 trillion in loans. Fueled by fear of foreclosure, shares in Fannie and Freddie lost nearly 80-percent of their value in the last 12 months, making it hard for them to borrow money to back new home loans.

If Fannie and Freddie cannot be counted on to buy mortgage loans made by banks to homebuyers, the banks have to charge higher interest rates, demand higher downpayments and require borrowers to have higher incomes -- all of which further damages the housing market.

In July, Congress approved a limited bailout plan for Fannie and Freddie authorizing the Treasury Department to back up to $25 billion in loans held by the two lenders. However, the companies continued to suffer, running up over $14 billion in losses over the last year.

Fannie Mae and Freddie Mac are charted by Congress to provide, "stability and liquidity in the secondary mortgage market, providing secondary market assistance relating to mortgages for low- and moderate-income families, and promoting access to mortgage credit throughout the Nation, including underserved areas." Congress created two corporations, instead of just one, in order to prevent the possibility of a monopoly in the home loan industry.

• What Are the Costs of this Bailout? (US Economy)

Also See:
What are Fannie Mae and Freddie Mac?
Fannie, Freddie and the Subprime Mortgage Crisis (US Economy)
The Bailout of Fannie Mae and Freddie Mac (US Economy)