Bonds News

UPDATE 1-Pimco's Gross-GSE takeover should help housing, economy

(Updates with background, adds byline)

SAN FRANCISCO, Sept 7 (Reuters) - Pimco's Bill Gross said on Sunday that the U.S. Treasury's takeover of Fannie Mae FNM.N and Freddie Mac FRE.N should ultimately slow the decline of housing prices and help the U.S. economy.

The U.S. government seized control of mortgage finance companies Fannie Mae and Freddie Mac, launching what could be its biggest bailout ever in a bid to support the U.S. housing market and ward off more global financial market turbulence. For details see [ID:nN07479172].

The action, prompted by worries over the companies’ shrinking capital, was the latest in a series of emergency steps taken by U.S. officials to prop up the wobbly housing sector and quell what is now a year-long crisis in credit markets that has helped push many economies toward recession.

“Today’s Treasury announcement is a positive move that ultimately should slow the decline of housing prices, prevent accelerating foreclosures, and reduce the negative momentum of the economy,” the manager of the world’s largest bond fund told Reuters.

Fannie Mae and Freddie Mac own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage and have $1.6 trillion in debt outstanding.

“By preserving the GSEs (government-sponsored enterprises) in current form -- at least for now -- and injecting sizable billions of dollars into the mortgage market, mortgage rates should come down, and the housing market will be healthier for it,” Gross said.

He added that considerable uncertainty remains about the timing of any housing market turnaround and when the bottom in national housing prices will be reached.

Since their peak in 2006, house prices have fallen by nearly 20 percent. The supply of homes for sale has also burgeoned a result of the building boom and mass speculation on house-price appreciation.

The slump has also left many borrowers with more debt than their homes are now worth, and analysts say Treasury’s plan will not change this in the short term. (Writing by Chris Sanders; Editing by James Dalgleish)