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Federal Conservatorship of Fannie Mae and Freddie Mac

On Sunday, September 7, 2008, the Director of the Federal Housing Finance Agency (FHFA) , James B. Lockhart, placed Fannie Mae and Freddie Mac into conservatorship, as authorized by the Housing and Economic Recovery Act of 2008 (HERA). Lockhart now has all the powers of the GSEs' directors, officers, and shareholders, and has appointed new chief executive officers who report to him. Lockhart explained that he was taking action "to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their [housing] mission, and mitigate the systemic risk that has contributed directly to the instability in the current market."

At the same time, Treasury Secretary Henry M. Paulson announced three additional steps under the GSE stabilization powers granted by HERA:

  1. The Treasury Department has entered into agreements with the GSEs giving it the right to buy their senior preferred stock, as needed, to make sure they maintain a positive net worth. The agreement includes an initial $1 billion issuance of senior preferred stock with a 10 percent dividend.
  2. The Treasury Department has set up the structure for the GSEs to borrow from Treasury if needed to maintain their regular business activities.
  3. The Treasury Department will purchase GSE mortgage-backed securities (MBSs) to support the mortgage market. GSE MBSs are pools of mortgages structured as securities with a GSE guarantee of the prompt payment of principal and interest. The GSEs either sell the MBSs in the financial markets or retain them in their portfolios.

NAR will work with the Administration and Congress to assure that there will continue to be a robust secondary mortgage market in good times and in bad. Continued liquidity in the mortgage market is essential to the health of the economy.

 

For more, read NAR's Issue Summary on GSEs, or our Frequently Asked Questions (PDF: 46K) about their conservatorship.