INSTANT VIEW: U.S. takes over Fannie Mae and Freddie Mac

NEW YORK (Reuters) - The U.S. government announced on Sunday that it was taking control of troubled mortgage finance giants Fannie Mae and Freddie Mac, in its latest effort to shore up the slumping housing market.

KEY POINTS: * The regulator of the two companies, the Federal Housing Finance Agency (FHFA) will manage the two companies on a temporary basis. * U.S. establishes preferred stock purchase agreements to insure each GSE retains positive net worth * Treasury's Paulson told regulators wouldn't commit taxpayers funds to GSEs without conservatorship * Treasury establishing secured lending credit facility for Fannie, Freddie, Home Loan Banks * Treasury to begin buying Fannie, Freddie MBS later this month under temporary program * Herb Allison to be new CEO of Fannie, David Moffett CEO of Freddie

COMMENTS:

DOUG KASS, CO-FOUNDER, HEDGE FUND SEABREEZE PARTNERS, PALM

BEACH, FLORIDA:

"The banking industry's lobbying to protect itself from losses on the preferred fell on deaf ears as well it should have. If taxpayers lose a penny, the common and preferred should and will get wiped out. Having to pay a 10 percent coupon on whatever the government gives them will assure there is nothing left over. Banks are going to have to take other than temporary impairment on their preferred holdings creating a new capital hole to fill in addition to that from credit losses. Banks will/may rally but this isn't really good news. It's not going to help credit or do anything to balance the negative effects of rising unemployment."

"Fannie and Freddie's common stock should each decline to $1-$2 early this week as they, predictably, are being dramatically diluted by the Treasury's bailout. They remain call options into the future -- but in all likelihood that future is not promising for FNM and FRE shareholders.

"From my perch, both stocks move ever closer to zero in the days and weeks ahead. Game over."

GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE INC., NORTH

PALM BEACH, FLORIDA:

"This assures the availability of mortgage credit. We would see a narrowing of mortgage spreads, which are at historic wides. Part of this could be attributable to Fannie Mae and Freddie Mac. They have been buying fewer loans and stacking more fees on loans they do buy.

"Whether mortgage rates will go down is the $64,000 question. If Treasury yields go up because perception of higher risk to hold U.S. government debt, that could negate the narrowing in spreads. If they don't, we could see mortgage rates go down by about 50 basis points in the coming weeks.

"Mortgage rates have not been the barrier to home purchases, but they have been a barrier to refinance."

STEPHEN WOOD, SENIOR PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS,

NEW YORK:

"We are sitting in a situation today where the most ardent proponent of regulation or state control program a year ago could not even have been dreamed about. This government involvement in the markets is beyond the wildest fantasy of a year or two ago. We're really looking at a regulator, Treasury and the Fed with limited choices. It's like an oncologist saying the side effects are going to be significant but doing nothing would be unacceptable.

"Spreads had not really come in, and agencies probably are one of the key drivers of spreads staying unacceptably wide . Until we can stop the hemorrhaging in housing, the economy and fixed income, the markets will not be able to recover. The best line today: this is a time out.

"If you are the equity holder, you're last in line. It's a very vulnerable position.

DANIEL SEIVER, PROFESSOR OF FINANCE, SAN DIEGO STATE

UNIVERSITY, SAN DIEGO:

"The stocks of other financial firms could do better because this relieves the uncertainty about Fannie and Freddie. We could see a relief rally in those stocks.

"But this can't turnaround the housing sector right away because foreclosures will continue to go up. All the assets on the books of Fannie and Freddie are still going to be impaired on Monday. They will have to mark down these assets.

"This could benefit the average homebuyer because they could perhaps see lower mortgage rates in the coming weeks. Indirectly that affects the homeowners. This could energize the housing market.

"Treasury bond prices may go down and yields are going up, while Fannie and Freddie bonds may rally. The Treasury is taking on more risk of those assets inherited, which are impaired. This could be problem for the Treasury down the road. The long term fiscal outlook for the U.S. government is cloudy, when you consider Social Security and Medicare prescription program." "We are facing a fiscal train wreck... we could lose our triple-A rating."

ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINIONS ECONOMICS,

NEW YORK:

It's still hard to know the cost for the government. Fannie and Freddie are always the accidents that are waiting to happen. Basically from the very start, these were operations that had an end game that wasn't viable. There was never a graceful way to get out. These institutions have been very leveraged. They didn't make sense from the very beginning.

"It is a stabilizing action, in their formal incarnation, they were unstable. Fannie and Freddie are corporate finance nightmares. No private capitals are ever going into these entities. Who would want to put money into them?

"If they have to pay more capital for their debt, they will no longer be profitable. They just got too big.

"The common shareholders are going to lose their shirts. This is a blunder by the government; they were set up to offer cheap mortgages for people which is a policy decisions. But this isn't moral hazard. This move for the government is a sensible one."