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Federal Rescue Plans for Mortgage Giants Halted
Jeffrey H. Birnbaum and Neil Irwin
Washington Post
Saturday, July 12, 2008
Senior government officials prepared emergency steps yesterday to rescue troubled mortgage giants Fannie Mae and Freddie Mac but stopped short after a campaign of public statements eased immediate concerns about the stability of the institutions.
But federal regulators were forced yesterday to seize California-based IndyMac Bancorp after a run by depositors led to the second-largest failure ever of a U.S. financial institution. The bank, which was taken over by the Federal Deposit Insurance Corp., became the first major bank to shutter its doors since the savings and loan crisis of the early 1990s. One of the country’s largest home lenders, IndyMac saw its holdings battered by the downturn in the housing market.
Similar troubles have buffeted Fannie Mae and Freddie Mac as anxiety has risen about whether the companies have enough capital to cover their mounting obligations because of troubled mortgages. With the companies’ stock value draining away in recent days, Treasury Department and Federal Reserve officials have been discussing several dramatic options, including allowing the companies to swap some of their holdings in troubled securities for public money as well as accessing government loans, according to government officials and others informed about the measures. Fannie Mae and Freddie Mac might also be allowed to tap an expanded line of credit from the Treasury.
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Such actions would be the first explicit statement by the government that it stands behind the two companies, though investors have long considered a federal guarantee to be implicit. That recognition alone could prove more valuable than the cash.
Some of the measures being considered bear a striking resemblance to the lifeline federal regulators extended to Wall Street’s biggest banks earlier this year in an effort to head off a global financial crisis and underscore the peril posed by the potential failure of either Fannie Mae or Freddie Mac.
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