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Washington Voices Support for Troubled Mortgage Companies; Oil Soars Above $147; Dow Falls


The U.S. Secretary of the Treasury says federal regulators are backing two troubled mortgage finance companies "in their current form."

The statement by Treasury Secretary Henry Paulson appeared to rule out a government takeover of the Fannie Mae and Freddie Mac companies, the two largest mortgage finance firms as their debts mount and their stock prices plunge.

The two firms own or guarantee about half of the U.S. mortgage market, which is worth trillions of dollars, and their problems may have played a role in the key U.S. stock index the Dow Jones Industrial Average falling to a two-year low below 11,000 points.

Fannie and Freddie have lost billions of dollars in the recent wave of U.S. mortgage defaults. Top government economic officials say Fannie and Freddie have adequate money, but investors appear skeptical.

The firms were chartered by the government to make mortgage loans more available to U.S. home buyers by buying up mortgages from banks, bundling them together, and reselling them as securities to investors around the world.

The U.S. economy has also been hurt by soaring oil prices, which hit a record high Friday of $147.27 a barrel in New York trading.

Oil prices rose because of tensions between Israel and Iran, a possible strike in Brazil, and continued violence in Nigeria which could limit crude supplies at a time of strong demand for oil.

Rising oil prices helped push the cost of all goods and services imported by the United States to a record high in May, but the falling value of the dollar also helped push U.S. exports to a record high. The net result was a slight (1.2 percent) decline in the U.S. trade deficit for the month to just under $60 billion.

U.S. consumers say they are worried about high oil prices, falling home values, and the declining stock market. A gauge of consumer sentiment showed Americans' view of the economy remains close to the most pessimistic level in 28 years.

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