On Sunday, US Treasury Secretary, Henry Paulson, announced plans for the Government to rescue the failing programs of Fannie Mae and Freddie Mac.
Why was it necessary for the government to step in?
* Our economy and markets won't be able to recover until the housing market rebounds
* Fannie Mae and Freddie Mac are critical to the housing market
* Intervention was necessary to ensure Fannie Mae /Freddie Mac could fulfill their mission to
increase the availability of mortgage loans for home ownership.
What is the Plan?
* Putting Fannie Mae and Freddie Mac in conservatorship under their new regulator the Federal Housing Financing Agency (FHFA) and replacing the top executives of both companies.
* The U.S. Treasury investing up to $100 billion of senior preferred stock and warrants in both government-sponsored enterprises (GSEs), as needed, in order to maintain positive net worth.
* Establishing a new secured lending credit facility for Fannie Mae and Freddie Mac and the 12 Federal Home Loan Banks in order help them fund their regular operations.
* The U.S. Treasury will temporarily purchase mortgage-backed securities (MBS) in the market to support the availability of mortgage financing.
The U.S. Treasury has set no time frame when the conservatorship will end; because the goal is to restore the confidence of the markets, stabilize the operations of Fannie Mae and Freddie Mac and make them financially sound and solvent. Hopefully, that time will not be far off.
The next Congress and President will need to determine the future structuring of these companies and their role in the housing and mortgage markets.
Comments(0)