U.S. seizes Fannie and Freddie

U.S. seizes Fannie and Freddie

Historic move would place twin mortgage buyers into the hands of new regulator. Top executives are out.

NEW YORK (CNNMoney.com) -- Federal officials unveiled an extraordinary takeover on Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, signaling the most dramatic move to date aimed at shoring up the nation's housing market. The plan, which was delivered by Treasury Secretary Henry Paulson and James Lockhart, director of the Office of Federal Housing Enterprise, places the twin mortgage buyers into "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.

"We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection," Paulson said. Both agencies will be open for business Monday morning. Dividends on both common and preferred shares will be eliminated in an effort to preserve capital. The regulators also ousted Richard Syron and Daniel Mudd, chief executive of Freddie Mac and Fannie Mae, respectively.

In their places, two finance veterans will be charged with restoring the mortgage titans to health. Herb Allison, who has shaken up TIAA-CREF in his eight years as chairman there, will head Fannie Mae. Allison formerly served as vice chairman of Merrill Lynch.
David Moffett, who served as vice chairman and chief financial officer of U.S. Bancorp until early 2007 and then joined the Carlyle Group private-equity firm as a senior advisor, will take over Freddie Mac. Mudd and Syron, who have shouldered much of the criticism of the companies' failures, will stay on to help with the transition, Paulson said. The executives have also come under fire for collecting multi-million pay packages as investors saw losses mount and share prices plummet.

Freddie (FRE, Fortune 500) and Fannie (FNM, Fortune 500), which were created by the U.S. government, own or back $5.4 trillion worth of home debt - half the mortgage debt in the country. Since last summer, they have suffered about $12 billion in losses.
In mid-July, the Treasury Department and Federal Reserve announced steps in to make funds available to the firms if necessary and Congress approved the sweeping proposals later that month.

Fannie and Freddie have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to do so is crucial to the recovery of the battered home market and the broader U.S. economy. The two firms buy loans, attach a guarantee, then sell securities backed by the loans' income stream. They have been badly hurt in the last year by the sharp decline in home prices and the rise in mortgage delinquencies and foreclosures. Both companies have been losing money for the past few quarters due to the subprime mortgage meltdown and steep declines in housing prices.
Shares of both companies are down more than 80% so far this year.

REO and Overall Home Sales Up in California

REO and Overall Home Sales Up in California, DataQuick Report Says
Carrie Bay 08.20.08

According to a report released by MDA DataQuick today, 44.8 percent of properties sold in California during July were REOs, up from 42.5 percent in June. Only 7.6 percent of California home sales were comprised of REO properties in July of 2007. DataQuick said a total of 39,507 homes – including REOs, owner resales, and new homes – were sold in California last month. That figure is up 12.2 percent from 35,202 in June and up 12.3 percent from 35,185 in July 2007.Based on DataQuick's numbers for California, the median price paid for a home last month was $318,000, down from $328,000 for the month before, and $478,000 a year ago. DataQuick cites half the drop in median price as a result of depreciation, the other half due to shifts in the types of homes selling and how those homes are financed.

The typical mortgage payment in California last month was $1,501, the real estate research company reported. That was down from $1,543 in June, and down from $2,316 in July a year ago. According to DataQuick , mortgage payments are back to where they were in early 2002, and are 41.7 percent below the current real estate cycle's peak in June 2006. It is no mystery that the California housing market is experiencing far-reaching adversity and has been one of the hardest hit states by the national mortgage crisis, but are we beginning to see a glimpse of recovery, or at least a plateauing of the downward spiral? Indicators of market distress continue to move in different directions in the Golden State, DataQuick cautioned.

Foreclosure activity has reached record levels, but financing with adjustable-rate mortgages (ARMs) is near an all-time low; down payment sizes and flipping rates are holding steady; and non-owner occupancy buying activity is flat, the research company reported.MDA DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies, and industry analysts. The company's numbers cover all sales, new and resale, houses and condos.