Reports are flying across the media that the expected federal takeover of the 2 mortgage giants will be happening as soon as this weekend. The plan calls for dismissing top execs and boards and placing one if not both under conservatorship. Common stock would be diluted, other securities including preferred shares would be protected by the government. The aim is to stabilize the US mortgage industry by shoring up these giants that hold or guarantee nearly 50% of the market.
Reports also indicate that cash infusions to the lending giants would be done quarterly on an as needed basis, rather than a lump sum, hoping to minimize costs of the bailout. Treasury Secretary Henry M. Paulson Jr. was said to have orchestrated the plan, and was accompanied to a meeting with both boards and execs by Fed Chair Ben Bernanke and Director of Housing Finance regulator James Lockhart.
One article found here in The Washington Post. Another here at Bloomberg.
UPDATE 09/07: They did complete the takeover and the Asian markets appear to be responding well to the news. What had been all negatives at the Friday close are all in positive territory. At the moment, Japan's Nekkei is +437, Hong Kong Hang Seng +770, and all 3 Aussie ASX are up a similar 3-4% range. Have to see if the European markets follow suit when they open. The idea of this takeover was to restore confidence in the financial markets and draw new investment. S&P has affirmed the AAA bond rating for both. The thought is that there should be an increase in investment and a lowering of mortgage rates, with some forcasting low to mid 5%'s. If that happens it would be good for the industry and for consumers.
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