The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, have agreed to pay $28 million to settle Federal Trade Commission charges that they engaged in unlawful practices in servicing consumers’ home mortgage loans.
The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Under the proposed settlement they will stop the alleged illegal practices and institute a data integrity program to ensure the accuracy and completeness of consumers’ loan information.
“Like other companies that send a bill, mortgage servicers must make sure that the amount they say is due really is the amount due,” said Lydia B. Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to expect accuracy from the company that collects their mortgage payments.”
As stated in the FTC’s complaint, Bear Stearns and EMC have played a prominent role in the secondary market for residential mortgage loans. During the explosive growth of the mortgage industry in recent years, they acquired and securitized loans at a rapid pace, but they allegedly paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, they neglected to obtain timely and accurate information on consumers’ loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. These practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.
According to the complaint, EMC is the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or “Alt-A” (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (“pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.
THE FTC COMPLAINT
The complaint charges Bear Stearns and EMC with violating the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA) Regulation Z.
FTC Act Violations: The defendants are charged with unfair and deceptive loan servicing practices in violation of the FTC Act. They allegedly misrepresented the amounts consumers owed; assessed and collected unauthorized fees, such as late fees, property inspection fees, and loan modification fees; and misrepresented that they possessed and relied upon a reasonable basis for their representations about consumers’ loans.
Fair Debt Collection Practices Act Violations: The defendants allegedly violated several provisions of the FDCPA in collecting loans that were in default when they obtained them. They also allegedly made harassing collection calls; falsely represented the character, amount, or legal status of consumers’ debts; and failed to communicate that debts were disputed. In addition, they allegedly used false representations or deceptive means to collect, and failed to send consumers a validation notice containing the amount of the debt and the consumer’s right to dispute the debt and obtain verification of the debt.
Fair Credit Reporting Act Violations: The FTC alleges that the defendants furnished information about consumers’ payment status to credit reporting agencies (CRAs). When consumers informed the defendants that they disputed the completeness or accuracy of the reported information, the defendants failed to report the dispute to the CRAs as required by the FCRA.
Truth in Lending Act’s Regulation Z Violations: The complaint also states that the defendants charged borrowers a loan modification fee, typically $500, and automatically added the fee to the modified loan’s principal balance. In doing so, the defendants failed to provide the borrowers with required TILA disclosures.
THE SETTLEMENT
The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars the defendants from future law violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:
* bars the defendants from misrepresenting amounts due and any other loan terms;
* requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans;
* bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract;
* prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes; and
* prohibits the defendants from violating the FDCPA, FCRA, and TILA.
The proposed settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information that they obtain about consumers’ loan accounts, before servicing those accounts. The defendants must obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.
The proposed settlement also contains record-keeping and reporting provisions to allow the FTC to monitor compliance with the order.
The Commission vote to authorize staff to file the complaint and proposed stipulated final order was 4-0. The documents were filed in the U.S. District Court for the Eastern District of Texas.
Including this case, the Commission has brought 23 actions in the past decade alleging deceptive or unfair practices by mortgage brokers, lenders, and servicers. Several of these landmark cases have resulted in large monetary judgments that have returned more than $320 million to consumers.
Thursday, September 11, 2008
positive impact on the local real estate market
The federal government's takeover of Freddie Mac and Fannie Mae could have a positive impact on the local real estate market, according to local real estate specialists.
"For us, it has a short term benefit in the real estate market," said Mike Chesser, attorney and board certified real estate specialist.
One benefit from the takeover will be seen through lower interest rates for mortgages, according to James Baker, executive vice-president of Baker and Lindsay Inc., a mortgage banking company.
"Most likely, local rates will get better. We've already seen a reduction of rates by one-half to three-quarters of a percent," said Baker. "We've never seen a drop that rapid."
The low interest rates could bring more buyers back and help some people refinance their way out of trouble, according to Peter Pike, in-house-counsel for McNeese Title LLC.
"Money is still there," said Pike. "But it's not going to make credit easier for anybody."
According to Chesser, the current credit crisis was caused by the failure to monitor and enforce regulations that were previously enforced, while low interest rates and easy access to credit allowed people to borrow more than they could afford.
"If we straighten out their mismanagement then it will be a positive outcome," said Chesser. "Both corporations were out of control."
Proper management of the companies should restore investor confidence to the real estate market, bringing buyers back and increasing demand, according to Baker.
"Relaxed lending standards encouraged loan officers to do marginally ethical or even unethical business practices," Baker said. Some of these practices included making "liar loans," which were based on stated income, not verifiable income.
The alternative to the takeover would have been a bleak picture, according to Pike.
"If they went out of business, mortgage costs would've went through the roof," said Pike. "We would basically go back to the 1960's with home lending."
The collapse of the companies would have eliminated all stability in the market, according to Pike.
"Had they collapsed it would've devastated the entire real estate market across the country," he said.
However, the takeover does not guarantee a positive outcome for the real estate industry, according to Chesser.
"If the government mismanages them as badly as private industry, then it won't get any better," he said.
"For us, it has a short term benefit in the real estate market," said Mike Chesser, attorney and board certified real estate specialist.
One benefit from the takeover will be seen through lower interest rates for mortgages, according to James Baker, executive vice-president of Baker and Lindsay Inc., a mortgage banking company.
"Most likely, local rates will get better. We've already seen a reduction of rates by one-half to three-quarters of a percent," said Baker. "We've never seen a drop that rapid."
The low interest rates could bring more buyers back and help some people refinance their way out of trouble, according to Peter Pike, in-house-counsel for McNeese Title LLC.
"Money is still there," said Pike. "But it's not going to make credit easier for anybody."
According to Chesser, the current credit crisis was caused by the failure to monitor and enforce regulations that were previously enforced, while low interest rates and easy access to credit allowed people to borrow more than they could afford.
"If we straighten out their mismanagement then it will be a positive outcome," said Chesser. "Both corporations were out of control."
Proper management of the companies should restore investor confidence to the real estate market, bringing buyers back and increasing demand, according to Baker.
"Relaxed lending standards encouraged loan officers to do marginally ethical or even unethical business practices," Baker said. Some of these practices included making "liar loans," which were based on stated income, not verifiable income.
The alternative to the takeover would have been a bleak picture, according to Pike.
"If they went out of business, mortgage costs would've went through the roof," said Pike. "We would basically go back to the 1960's with home lending."
The collapse of the companies would have eliminated all stability in the market, according to Pike.
"Had they collapsed it would've devastated the entire real estate market across the country," he said.
However, the takeover does not guarantee a positive outcome for the real estate industry, according to Chesser.
"If the government mismanages them as badly as private industry, then it won't get any better," he said.
5.5 percent, thirty year fixed rates
Most of you have already heard the recent news regarding lending giants Fannie and Freddie. This action by Washington will have enormous short and long term implications on our industry.
The federal government is bailing out "Frannie" after the lending giant filed bankruptcy. In the short-term, this drastic measure could be good for sales as interest rates take a temporary drop. The news has caused a buzz at the State House as South Carolina House Representative and Wachovia Mortgage Broker Nathan mentioned 5.5 percent, thirty year fixed rates on his blog. As many REALTORS® have advocated, the long term effects could mean a complete overhaul of the government sponsored enterprises
The federal government is bailing out "Frannie" after the lending giant filed bankruptcy. In the short-term, this drastic measure could be good for sales as interest rates take a temporary drop. The news has caused a buzz at the State House as South Carolina House Representative and Wachovia Mortgage Broker Nathan mentioned 5.5 percent, thirty year fixed rates on his blog. As many REALTORS® have advocated, the long term effects could mean a complete overhaul of the government sponsored enterprises
Wednesday, September 10, 2008
decline in mortgage rates created surge of activity
This week's fast decline in mortgage interest rates has created a surge of activity at mortgage companies, as homeowners ponder refinancing and buyers decide whether to lock in a loan rate.
Rates for borrowers with the best credit dropped half a percentage point or more by Monday afternoon. As of Wednesday, the national average for 30-year, fixed-rate mortgages was 6.15 percent, down from 6.55 percent a week earlier, according to Bankrate.com.
Narbik Karamian, a mortgage broker in Los Gatos with Arvest Financial, said he has gotten calls from seven or eight clients since Monday, some wanting to make offers on homes while rates are low, others wanting to refinance their existing mortgages.
"As soon as it hit the high 5's people started pouring in," he said, referring to interest rates for 30-year mortgages, some of which are in the 5.75 percent range, if the borrower is willing to pay a "point" upfront to lower the rate. A point is equal to 1 percent of the loan amount.
The decline in rates is "a small positive," for the Bay Area housing market, said Kenneth T. Rosen, chairman of the Fisher Center for Real Estate at UC-Berkeley. He estimated that lower rates could increase buyer demand by 4 percent or 5 percent, but mostly among borrowers with high credit scores and big down payments available, who weren't experiencing much trouble getting loans anyway.
Mortgage rates fell Monday in response to the federal government's virtual takeover of struggling mortgage financing companies Fannie Mae and Freddie Mac, which was announced Sunday.
It's too soon to tell whether interest in the lower rates will translate into significant improvement for the local real estate market.
Lower rates have "gotten people excited," agreed Nina Yamaguchi, who manages a Coldwell Banker office in Cupertino. But, she said, "It's so new that it hasn't had a chance to translate into deals yet."
Inquiries are up this week at Technology Credit Union, too, said Steve Donahue, vice president of mortgage originations, but most callers are still in the "exploration phase," he said, not charging out to make offers.
One of the factors hindering home sales in the Bay Area — not to mention all over the country — is that mortgage lenders are continuing to tighten their borrowing criteria in an effort to lessen the chances of future foreclosures. Whereas a credit score of 620 was considered good a year ago, only scores of 720 or higher earn borrowers the best interest rates now, for example. (850 is the maximum score given by the Fair Isaac Co., whose scores are the industry standard.) Borrowers with down payments of 10 percent or less find it more difficult to get loans, except through channels such as the California Housing Finance Agency and the Federal Housing Administration.
Also slowing the market is the fact that many homeowners opt not to sell if they can't get what they think their house "should" be worth, based on its peak value. And many prospective owners don't like the idea of buying a home that may decline in value.
"We don't want to buy anything if we think it's going to go on sale next week," Donahue said.
In recent months, however, more buyers have been pouncing on "bank-owned" properties — those that have been foreclosed upon — and as a result there's increased competition for those bargain-priced homes. Lower rates might further spur buying in that segment of the market, Donahue said.
The government rescue plan for Fannie and Freddie may have slight benefits for consumers, Rosen said. But the plan by the U.S. Treasury Department, committing perhaps $200 billion or more to guarantee the security of Fannie and Freddie, is "a sign of distress, not a sign of recovery," he said. Before the housing market can recover, he said, "confidence has to be restored. It's going to take job creation, and the foreclosures we have working through the system," which he estimated will take at least another year.
Rates for borrowers with the best credit dropped half a percentage point or more by Monday afternoon. As of Wednesday, the national average for 30-year, fixed-rate mortgages was 6.15 percent, down from 6.55 percent a week earlier, according to Bankrate.com.
Narbik Karamian, a mortgage broker in Los Gatos with Arvest Financial, said he has gotten calls from seven or eight clients since Monday, some wanting to make offers on homes while rates are low, others wanting to refinance their existing mortgages.
"As soon as it hit the high 5's people started pouring in," he said, referring to interest rates for 30-year mortgages, some of which are in the 5.75 percent range, if the borrower is willing to pay a "point" upfront to lower the rate. A point is equal to 1 percent of the loan amount.
The decline in rates is "a small positive," for the Bay Area housing market, said Kenneth T. Rosen, chairman of the Fisher Center for Real Estate at UC-Berkeley. He estimated that lower rates could increase buyer demand by 4 percent or 5 percent, but mostly among borrowers with high credit scores and big down payments available, who weren't experiencing much trouble getting loans anyway.
Mortgage rates fell Monday in response to the federal government's virtual takeover of struggling mortgage financing companies Fannie Mae and Freddie Mac, which was announced Sunday.
It's too soon to tell whether interest in the lower rates will translate into significant improvement for the local real estate market.
Lower rates have "gotten people excited," agreed Nina Yamaguchi, who manages a Coldwell Banker office in Cupertino. But, she said, "It's so new that it hasn't had a chance to translate into deals yet."
Inquiries are up this week at Technology Credit Union, too, said Steve Donahue, vice president of mortgage originations, but most callers are still in the "exploration phase," he said, not charging out to make offers.
One of the factors hindering home sales in the Bay Area — not to mention all over the country — is that mortgage lenders are continuing to tighten their borrowing criteria in an effort to lessen the chances of future foreclosures. Whereas a credit score of 620 was considered good a year ago, only scores of 720 or higher earn borrowers the best interest rates now, for example. (850 is the maximum score given by the Fair Isaac Co., whose scores are the industry standard.) Borrowers with down payments of 10 percent or less find it more difficult to get loans, except through channels such as the California Housing Finance Agency and the Federal Housing Administration.
Also slowing the market is the fact that many homeowners opt not to sell if they can't get what they think their house "should" be worth, based on its peak value. And many prospective owners don't like the idea of buying a home that may decline in value.
"We don't want to buy anything if we think it's going to go on sale next week," Donahue said.
In recent months, however, more buyers have been pouncing on "bank-owned" properties — those that have been foreclosed upon — and as a result there's increased competition for those bargain-priced homes. Lower rates might further spur buying in that segment of the market, Donahue said.
The government rescue plan for Fannie and Freddie may have slight benefits for consumers, Rosen said. But the plan by the U.S. Treasury Department, committing perhaps $200 billion or more to guarantee the security of Fannie and Freddie, is "a sign of distress, not a sign of recovery," he said. Before the housing market can recover, he said, "confidence has to be restored. It's going to take job creation, and the foreclosures we have working through the system," which he estimated will take at least another year.
Tuesday, September 9, 2008
How Fannie and Fredie work.
The federal government seized control of Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac on Sunday. The take over is an attempt to quell investor fears and stabilize the housing market and the U.S. economy. The result may be just the opposite. Either way, the move has enormous implications for the livelihood of mortgage originators.
Fannie Mae and Freddie Mac were shareholder-owned corporations chartered by congress nearly four decades ago to expand the flow of mortgage funds, affordable housing, and security to the nation’s housing system. Fannie Mae and Freddie Mac together own over $5 trillion in home loans, which is half of the country’s mortgage debt.
It was set up to work like this: Home buyers borrow money from banks who then sell the mortgages to Fannie or Freddie who then bundle the loans and resell them as bonds to investors.
According to published reports by the Associated Press, "the role the two companies played in the U.S. mortgage market grew dramatically over the past year as other lenders collapsed under the weight of bad subprime loans. The companies guaranteed about three-quarters of all new mortgages in the second quarter of this year, up from under 40 percent in 2006."
Fannie and Freddie came under fire when the housing market crashed and investors began to see their bonds as risky. The two companies lost $14 billion in the last year alone with more losses piling up as home values continue to sink and defaults continue to pile up.
Back in July, the federal government announced that they would step in, should the need arise, and rescue the mortgage giants by 1.) Passing legislation that would extend lines of credit on a temporary basis over the current $2.25 billion limit from the Treasury to Fannie and Freddie; 2.) Giving the Treasury the option to buy equity in Fannie and Freddie; and 3.) Granting the Federal Reserve Bank of New York the authority to lend additional funds to the GSEs.
A few months ago, this precautionary plan seemed just that. Both Fannie and Freddie assured the public and their stockholders that they were “adequately capitalized". Federal Reserve Chairman Ben Bernanke stood before the House Financial Services Committee and assured them that Fannie Mae and Freddie Mac were in "no danger of failing" and that a lack of investor confidence in the housing market led to the GSE’s inability to raise capital which caused investors to get the jitters, stock prices to plunge, and the Fed to make their precautionary announcement.
However, that precautionary announcement didn’t do much to quell investor fears, particularly major foreign investors like the central banks of China and Russia. Fannie and Freddie stocks continued to go down and because of their inability to raise funds from the private sector, the mortgage giants - who were once viewed as the beacons of stability in the housing market - appeared to be standing on shaky ground. On top of this, recent housing reports have gotten worse. On Friday, the Mortgage Bankers Association (MBA) reported that nearly one in ten homeowners are either delinquent or in some stage of the foreclosure process.
So, on Sunday, the federal government stepped in and took over by placing the two companies into a conservatorship which will be overseen by the Federal Housing Finance Agency (FHFA). This means that the FHFA will come in and run the companies until they are stable. It also means that they have cleaned house.
Richard F. Syron, Chairman and CEO of Freddie Mac, and Daniel H. Mudd, President and CEO of Fannie Mae, are out. They’ve been replaced by David Moffett and Herb Allison. Moffett, who will take the reins at Freddie, was formerly a senior advisor at the Carlyle Group and vice chairman and chief financial officer of U.S. Bancorp. Allison, who will head Fannie, is the former president of Merrill Lynch and the former chairman and chief financial officer of TIAA-CREF. The boards of both companies will be controlled by the FHFA.
The government expects that this move will give investors a “guarantee” that Fannie and Freddie will not fail and the U.S. housing market will recover. They’re hoping that with renewed faith and a sense of reduced risk and security, investors will re-inject funds back into the market.
It can go either way.
In the best-case scenario, investors will buy into the move hook, line, and sinker. More liquidity and stability will enable regulators to ease up on lending restrictions and bring more borrowers back into the market. Eased lending restrictions are the key to housing market recovery.
In the worst-case scenario, the market won’t buy into the move. Fannie and Freddie stock will continue to sink and the U.S. federal government – and ultimately U.S. taxpayers – will be left holding the bag. Regulators will be forced to tighten lending restrictions in order to prove to the market that they are still viable.
It’s going to take some time to determine just how investors are going to respond. Originators will be watching closely in the next few days or weeks to see how this plays out. Their livelihood and their industry hang in the balance.
Fannie Mae and Freddie Mac were shareholder-owned corporations chartered by congress nearly four decades ago to expand the flow of mortgage funds, affordable housing, and security to the nation’s housing system. Fannie Mae and Freddie Mac together own over $5 trillion in home loans, which is half of the country’s mortgage debt.
It was set up to work like this: Home buyers borrow money from banks who then sell the mortgages to Fannie or Freddie who then bundle the loans and resell them as bonds to investors.
According to published reports by the Associated Press, "the role the two companies played in the U.S. mortgage market grew dramatically over the past year as other lenders collapsed under the weight of bad subprime loans. The companies guaranteed about three-quarters of all new mortgages in the second quarter of this year, up from under 40 percent in 2006."
Fannie and Freddie came under fire when the housing market crashed and investors began to see their bonds as risky. The two companies lost $14 billion in the last year alone with more losses piling up as home values continue to sink and defaults continue to pile up.
Back in July, the federal government announced that they would step in, should the need arise, and rescue the mortgage giants by 1.) Passing legislation that would extend lines of credit on a temporary basis over the current $2.25 billion limit from the Treasury to Fannie and Freddie; 2.) Giving the Treasury the option to buy equity in Fannie and Freddie; and 3.) Granting the Federal Reserve Bank of New York the authority to lend additional funds to the GSEs.
A few months ago, this precautionary plan seemed just that. Both Fannie and Freddie assured the public and their stockholders that they were “adequately capitalized". Federal Reserve Chairman Ben Bernanke stood before the House Financial Services Committee and assured them that Fannie Mae and Freddie Mac were in "no danger of failing" and that a lack of investor confidence in the housing market led to the GSE’s inability to raise capital which caused investors to get the jitters, stock prices to plunge, and the Fed to make their precautionary announcement.
However, that precautionary announcement didn’t do much to quell investor fears, particularly major foreign investors like the central banks of China and Russia. Fannie and Freddie stocks continued to go down and because of their inability to raise funds from the private sector, the mortgage giants - who were once viewed as the beacons of stability in the housing market - appeared to be standing on shaky ground. On top of this, recent housing reports have gotten worse. On Friday, the Mortgage Bankers Association (MBA) reported that nearly one in ten homeowners are either delinquent or in some stage of the foreclosure process.
So, on Sunday, the federal government stepped in and took over by placing the two companies into a conservatorship which will be overseen by the Federal Housing Finance Agency (FHFA). This means that the FHFA will come in and run the companies until they are stable. It also means that they have cleaned house.
Richard F. Syron, Chairman and CEO of Freddie Mac, and Daniel H. Mudd, President and CEO of Fannie Mae, are out. They’ve been replaced by David Moffett and Herb Allison. Moffett, who will take the reins at Freddie, was formerly a senior advisor at the Carlyle Group and vice chairman and chief financial officer of U.S. Bancorp. Allison, who will head Fannie, is the former president of Merrill Lynch and the former chairman and chief financial officer of TIAA-CREF. The boards of both companies will be controlled by the FHFA.
The government expects that this move will give investors a “guarantee” that Fannie and Freddie will not fail and the U.S. housing market will recover. They’re hoping that with renewed faith and a sense of reduced risk and security, investors will re-inject funds back into the market.
It can go either way.
In the best-case scenario, investors will buy into the move hook, line, and sinker. More liquidity and stability will enable regulators to ease up on lending restrictions and bring more borrowers back into the market. Eased lending restrictions are the key to housing market recovery.
In the worst-case scenario, the market won’t buy into the move. Fannie and Freddie stock will continue to sink and the U.S. federal government – and ultimately U.S. taxpayers – will be left holding the bag. Regulators will be forced to tighten lending restrictions in order to prove to the market that they are still viable.
It’s going to take some time to determine just how investors are going to respond. Originators will be watching closely in the next few days or weeks to see how this plays out. Their livelihood and their industry hang in the balance.
Sunday, September 7, 2008
taking control of mortgage giants Fannie Mae and Freddie Mac
The Bush administration, acting to avert the potential for major financial turmoil, announced Sunday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials announced that the executives of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
[AD]
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Officials announced that the executives of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
[AD]
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Subscribe to:
Posts (Atom)