US

Government takes control of mortgage banks

Article published on the 2008-09-08 Latest update 2008-09-25 09:51 TU

U.S. Secretary of the Treasury Henry Paulson (R) and Jim Lockhart Director of the Federal Finanace Agency
(Photo: Reuters)

Financial markets around the world on Monday welcomed the news that the US government had propped up the mortgage banks Fannie Mae and Freddie Mac.

On Sunday US Treasury Secretary Henry Paulson announced that the US government was taking the banks into "conservatorship". This nationalisation means the two banks will have easier access to credit as the government guarantees the debt of the two institutions at a cost of up to 25 billion dollars.

The importance of the two lenders is due to the fact that almost 6 trillion dollars worth of US home loans are owned by Fannie Mae and Freddie Mac. These loans represent close to half of all mortgages in the US where mortage defaulting has led to a crisis in the property market.

New CEOs will be appointed at the banks as part of the rescue package and will begin work on Monday.

Stock markets in Europe and Asia reacted postively to the news with increases in Paris (+ 4.32%), London (+ 3.81%) and Frankfurt (+ 3.42%). Tokyo's stock exchange closed up 3.38% and Hong Kong's 4.3%. Paulson was due to speak to his counterparts in the G7 countries (France, UK, Italy, Germany, Japan, Canada) later on Monday.

Finance officials in Japan and Australia have already welcomed the move by the US government.