Fed Spells Out Fannie-Freddie Finance Plan

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WASHINGTON - WASHINGTON - Once again, the government is stepping in to help ease the credit crunch.

Fannie Mae and Freddie Mac, America's largest home financers, are getting government help to avoid more fallout from the credit crisis.

U.S. regulators are signaling to the world the mortgage giants will stay sound. But that comes in the midst of more bad news in the troubled housing market.

Click play to get CBN News Financial Editor Drew Parkhill's analysis following this report.


Investors woke up with a little more confidence in the housing market this morning.

Overseas trading of mortgage giants Fannie Mae and Freddie Mac both saw a rise in the stock index futures - but only after the U.S. government stepped in to rescue the firms following a 40-percent plunge in share prices last week.

Together Fannie Mae and Freddie Mac hold or back half of the nation's home mortgage debt - that's $5.3 trillion worth.

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," U.S. Treasury Secretary Henry Paulson.

Already, the Fed has announced it will lend money to the companies at a reduced rate if needed.

But the larger rescue plan includes expanding the firms' lines of credit, giving the Treasury Department authority to buy stocks to prop them up, and making the Federal Reserve a partner with Congress in regulating Fannie and Freddie.

But such a change first requires congressional approval. And both the White House and lawmakers on Capitol Hill say they're ready to act quickly to make sure there's enough money for home loans in an already-troubled housing market.

The move comes on the heels of the collapse of California-based IndyMac, which reopens today under a new name and with new leadership.

"Customers should just view this as a change in ownership," IndyMac CEO John Boyenzi said.

The bank experienced a classic run after depositors withdrew their money.Regulators blame that in part to a public letter by New York Senator Charles Schumer, they say did more harm than good.

No More Lifelines?

Today, the head of the new IndyMac Federal Bank says it's business as usual.

"If you have insured accounts, you have nothing to worry about. You don't have to suffer any inconvenience. If you want to withdraw money, you can do that at any time. We're opening for business as usual," Bovenzi said.

The question many are asking is how many more banks out there are in the same boat with bad loans, and does the government have the ability to continue stepping in to calm investors' nerves?

Investors believe the bailout of major players Fannie Mae and Freddie Mac is a signal to other struggling banks that there may be no more government lifelines.

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CBN News
John Jessup

John Jessup

CBN News Washington Correspondent

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