As most of you know Freddie mac and Fannie Mae have been taken over by the Feds and in the meantime over nite rates have dropped from the sky. Mr. Paulson’s plan offers the two mortgage giants plenty of security and investors some guidance. The details are below according to The Mortgage Bankers Association:
Today, the U.S. government took a historic step to stabilize the U.S. mortgage markets and financial system by placing Fannie Mae and Freddie Mac in conservatorship.
During a mid-morning press conference by government officials, they announced these key steps:
· Conservatorship
Fannie Mae and Freddie Mac are placed into conservatorship immediately. (No change in status for the Federal Home Loan Banks.)
· GSE Portfolios
To promote market stability, the GSEs will be allowed to increase their MBS portfolios through the end of 2009. However, starting in 2010 the portfolios will gradually be reduced at a rate of 10% per year through run-off, eventually stabilizing at a much lower size.
· Treasury Preferred Stock Agreement
Treasury and the Federal Housing Finance Agency (FHFA) have established a Preferred Stock Purchase Agreement to ensure that each company maintains positive net worth. These agreements are intended to provide security to GSE debt holders and MBS investors. In exchange, Treasury receives a senior preferred equity share and warrants to protect taxpayers – common and preferred shareholders will bear any potential losses ahead of the government’s senior preferred shares.
· Secured Lending Credit Facility
Treasury has established a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. This facility is intended to serve as an “ultimate liquidity backstop.” This facility will expire on December 31, 2009.
· Treasury Program to Buy GSE MBS
Later this month, Treasury will be initiating a temporary program to purchase Fannie Mae and Freddie Mac MBS. Such purchases will be made as appropriate. The program will expire on December 31, 2009.
Other highlights:
· On Monday, the GSEs are expected to resume normal business operations.
· The U.S. government assumes control over the Board and management.
· Current Fannie Mae and Freddie Mac CEOs are being replaced, but will stay on through a transition period.
· Herb Allison will assume CEO duties at Fannie Mae, and David Moffett will assume CEO duties at Freddie Mac.
· There will be limited initial management actions – they will work with the current management team.
· There will be no dividends paid on preferred or common stock.
· All lobbying/political activity by the GSEs will cease.
Next Steps:Today’s actions have significant implications for the future of the U. S. housing finance system. Clearly, there will be robust policy debates over the long-term structure and role of the GSEs. In anticipation of these discussions, MBA will be working with its members to develop policy options that ensure an efficient and stable housing finance system.
Yours Very Truly,
John A. Courson
It’s about time Now go into Lehman Brothers and start getting this ENRON case started.
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