Praise, anxiety greet mortgage twins
NEW YORK–Wall Street greeted the U.S. government’s seizure of mortgage giants Fannie Mae and Freddie Mac with a sigh of relief yesterday, hoping it would provide some relief to ongoing crises in housing and credit markets.
However, many analysts said the bailout of the United States’ two biggest mortgage finance companies, which could be the government’s costliest ever, was a symptom of the still-dismal state of credit markets after a year of crisis.
The immediate reaction on the mortgage front was favourable. Mortgage rates fell in the hope that now the government was standing behind Fannie and Freddie, they’d be able to continue providing ample funds for home loans and bolster the ailing housing market. Thirty-year home mortgage loan rates fell about a half percentage point from Friday to 6 per cent, according to Bankrate.com.
In financial markets, stock prices around the world surged on hopes the U.S. Treasury’s plan to take control of the companies – which together back about half the $12 trillion in U.S quick payday loan. home mortgages – might put at least a temporary floor under troubled financial markets.
While the Dow Jones industrial average rose, Fannie Mae and Freddie Mac stocks got hammered, losing more than 80 per cent of their value and trading below $1 a share.
The takeover came as worries heightened over shrinking capital at the congressionally chartered companies, which had combined losses of nearly $14 billion the last four quarters.
It was welcome news to China and Japan, the biggest buyers of the two companies’ bonds, who praised Washington for its rescue of the mortgage giants.
But analysts noted this was only the latest in a string of bailouts. None has achieved lasting success.
Yesterday, U.S. Treasury Secretary Henry Paulson said he couldn’t estimate how big the taxpayers’ burden would be until the extent of mortgage market declines were fully known.
Reuters News Agency