Fannie Mae and Freddic Mac Placed in Conservatorship
Treasury Secretary Hank Paulson and Federal Housing Finance Agency (FHFA) Director Jim Lockhart announced that FHFA has placed Fannie Mae and Freddie Mac into conservatorship. The Treasury Department will provide financial support to the companies under authority established in the GSE portion of the Housing and Economic Recovery Act of 2008.
Director Lockhart stated that the move was required; Fannie and Freddie had become unable to balance pursuit of mission with safe and sound operation and Secretary Paulson cited the risk to the financial system of Fannie’s and Freddie’s large portfolios. Both men explained the immediate objective to stabilize the mortgage and financial markets, improve affordable housing opportunities, and speed a housing recovery.
Spreads between Fannie Mae and Freddie Mac mortgage-backed securities and the Treasury benchmark have widened. In addition, Fannie Mae and Freddie Mac have increased guarantee and adverse market delivery fees and tightened underwriting standards. These developments have added to mortgage interest rates and limited mortgage availability.
Secretary Paulson announced three initiatives under the government’s backstop plan:
- Treasury has established a senior preferred stock purchase agreement where Treasury will contribute cash capital to Fannie or Freddie if it is needed to maintain a positive net worth and avert triggering of mandatory receivership. In exchange, Treasury -receives shares of preferred stock in the GSE and warrants representing an ownership stake in the GSE. In addition to the return to Treasury on the preferred stock, Fannie and Freddie will begin paying a fee to the government for this support in 2010.
- Treasury has established a GSE credit facility to ensure Fannie, Freddie and the Federal Home Loan Banks have continuous access to liquidity on an as-needed basis.
- Treasury will begin purchasing Fannie Mae- and Freddie Mac-guaranteed mortgage-backed securities to improve liquidity in that market. Fannie’s and Freddie’s capital constraints have increasingly hampered their capacity to purchase these securities for their portfolios.
The plan is designed to protect the interests of senior and subordinate debt holders as well as the positions of investors in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
View the following Fact Sheets for more information:
Treasury Senior Preferred Stock Purchase Agreement Fact Sheet
GSE Mortgage Backed Securities Purchase Program Fact Sheet
Government Sponsored Enterprise Credit Facility
FHFA Fact Sheet
View NAHB's press release covering the conservatorship.
For more information, e-mail David Ledford, or call him at 800-368-5242 x8265
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