US government takes on big role in mortgage market

WASHINGTON (AP) -- Investors reacted positively today to word that the Bush administration seized troubled mortgage giants Fannie Mae and Freddie Mac.

Private analysts caution it may not be enough to stabilize the housing market because of a glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Economist Mark Zandi with Moody's predicts that 30-year mortgage rates could dip to close to 5.5 percent. They now average 6.35 percent nationwide. Investors are seen more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now standing behind that debt.

Officials announced that Fannie Mae and Freddie Mac were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson has refused to estimate how much the takeover of the two companies will cost the government. He insists that taxpayers will get paid back first.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

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