1. Manuela Eburi Marissa Saleman

2. 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

3. Freddie Mac  Federal Home Loan Mortgage Corporation  FHLMC  Established in 1970  Became a public entity in 1989  Securitized mortgages originated by Savings & Loans Associations

4. Timeline 2003 – March 2008 2003 Interest Rates fall to 1% 2006 Subprime Crisis 2007 Fannie and Freddie’s shareholders began to panic March 2008 OFHEO reduces capital requirem ents

5. 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

6. 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

7. Three Elements for GSE Financing During Conservatorship  Senior Preferred Stock Purchase Agreement  GSE MBS Purchase Program  GSE Credit Facility

8.  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?

9. Spectrum of Stability Taxpayers will suffer The Treasury May Earn a Profit

10. The Future of Fannie and Freddie  SEC Regulation  Reducing Systemic Risk  Fannie and Freddie are Large Purchasers of Interest Rate Swaps

11. The Future of Fannie and Freddie is Still Very Uncertain…