Government Take Over of Fannie, Freddie Imminent

This rescue has been heavily debated since the government gave Treasury Secretary Paulson the tools to directly inject cash into the trouble institutions. However, recent confidence yielded from Freddie Mac's successful issuance of debt and recent shake-up of the Fannie Mae executive suite seemed to restore some confidence to the market and shareholders.

However, swirling rumors of government takeover have sent the two entities stock plummeting.

The sudden shift into action is suspected to have been triggered by the recent leap in unemployment rates and the expected effects it will have on mortgage defaults and increasing foreclosures. This alarming unemployment report is expected to accelerate and already subtle trend in default data--even good credit borrowers are being hit by the weak economy and missing payments and losing there homes.

A related report by the Mortgage Bankers Association indicated that nearly 9 percent of all American homeowners are now late on a mortgage payment. These data points would combine to indicate that forecasted losses in Fannie and Freddie's portfolios could reach unmanageable levels for institutions to remain private and publicly capitalized.

Top government players Ben Bernanke, Federal Reserve Chairman, James Lockhart, Director of OFHEO, and Treasury Secretary Henry Paulson met with executives from Fannie Mae and Freddie Mac on Friday afternoon--thought to be a meeting to inform Fannie and Freddie management of the pending move to seize the two institutions.

According to Government Accounting Office figures, taking Fannie and Freddie into government control will cost taxpayers upwards of $25 billion. These monstrous mortgage institutions current own to guarantee over half of American's $12 trillion in mortgage debt.