An interesting development
Treasury Secretary Henry Paulson is putting Fannie Mae and Freddie Mac into a conservatorship.A bold move.
A conservatorship sounds like a euphuism for a bankruptcy trusteeship, and it likely is. The real question is, which way will the treasury and the Fed go? Chapter 11, or 7?
The former would “clean house,” and likely reduce the equity holders’ stakes significantly, but keep the entities in place with greater oversight. They might even be merged. This could be a good thing.
The latter, which appears to be a "Plan B," if the current option doesn't work out, is a more radical move, as it could result in the entities being converted into a fully-government operated entity like FHA or possibly liquidating them and removing that source of funding from the market. Either is a bold move.
Whichever way it goes, it will be an interesting ride for the mortgage and residential markets.
The latter, which appears to be a "Plan B," if the current option doesn't work out, is a more radical move, as it could result in the entities being converted into a fully-government operated entity like FHA or possibly liquidating them and removing that source of funding from the market. Either is a bold move.
Whichever way it goes, it will be an interesting ride for the mortgage and residential markets.
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