This 2008 photo shows the Freddie Mac corporate office in McLean, Va. | Pablo Martinez Monsivais/AP Photo Bush administration seizes mortgage firms, Sept. 7, 2008

As the nation’s housing market continued to collapse, Bush administration officials on this day in 2008, a Sunday, seized control of Fannie Mae and Freddie Mac, placing the federal government in charge of the twin mortgage giants, which held some $5 trillion in home loans.

The takeover extended $200 billion in U.S. Treasury support to the two companies in an eventually successful effort to rescue the nation’s housing market amid record foreclosures and tumbling prices. In agreeing to backstop the firms, the government received $1 billion in their senior preferred stock, quarterly dividend payments and outright ownership of 79.9 percent of each company.


“A failure [of Fannie and Freddie] would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,” Treasury Secretary Henry Paulson told reporters.

President George W. Bush said: “Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth in the future.”

On Sept. 24, the lame-duck president — speaking in a nationwide address only two months before an election that would choose his successor — noted that “in today's mortgage industry, home loans are often packaged together, and converted into financial products called ‘mortgage-backed securities.’

“These securities were sold to investors around the world. Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Bush added: “The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks … found themselves saddled with large amounts of assets they could not sell.

“They ran out of the money needed to meet their immediate obligations. And they faced imminent collapse. ... With the situation becoming more precarious by the day, I faced a choice: To step in with dramatic government action, or to stand back and allow the irresponsible actions of some to undermine the financial security of all.”

The president concluded: “I’m a strong believer in free enterprise. So, my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances.”

The mortgage companies have since recovered from the housing crisis and paid back all their taxpayer-funded loans.

SOURCE: “THIS DAY IN PRESIDENTIAL HISTORY,” BY PAUL BRANDUS

