Manuela Eburi Marissa Saleman
Fannie Mae The Federal National Mortgage Association FNMA Established in 1938 Was converted into a private shareholder-owned corporation in 1968 Held mortgages it bought from mortgage banks
Freddie Mac Federal Home Loan Mortgage Corporation FHLMC Established in 1970 Became a public entity in 1989 Securitized mortgages originated by Savings & Loans Associations
Timeline 2003 – March Interest Rates fall to 1% 2006 Subprime Crisis 2007 Fannie and Freddie’s shareholders began to panic March 2008 OFHEO reduces capital requirem ents
Timeline April 2008 – August 2008 April 2008 Fannie and Freddie had 75% of new mortgages July 2008 GSE would need a government bailout July 30, 2008 The Housing and Economic Recovery Act
Timeline August – September 2008 August 27, 2008 Sold $3B worth of short-term debt August 28, 2008 Fed releases bailout data September 7, 2008 Bailed out and placed into conservatorship
Three Elements for GSE Financing During Conservatorship Senior Preferred Stock Purchase Agreement GSE MBS Purchase Program GSE Credit Facility
Implications of Conservatorship GSE debt equals more than $5trillion The US Treasury will have to purchase more stock as more GSE losses are recognized What if…? The government never stepped in? The MBS’s were liquidated? The government postponed stepping in?
Spectrum of Stability Taxpayers will suffer The Treasury May Earn a Profit
The Future of Fannie and Freddie SEC Regulation Reducing Systemic Risk Fannie and Freddie are Large Purchasers of Interest Rate Swaps
The Future of Fannie and Freddie is Still Very Uncertain…