Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers (hp-1129, September 7, 2008)

Claims Supported by This Source

1. On September 7, 2008, the FHFA placed Fannie Mae and Freddie Mac into conservatorship, and the Treasury Department took three complementary actions. This was based on new authorities granted to the Treasury, Fed, and FHFA by Congress in July.
2. Action 1: Preferred Stock Purchase Agreement. The Treasury committed to maintaining a positive net worth for each company, providing assurance to holders of senior and subordinated GSE debt and GSE-guaranteed MBS. The Treasury received senior preferred stock and warrants, with common and existing preferred shareholders bearing losses before the government's preferred stock.
3. Action 2: A secured lending credit facility for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (until the authority expired in December 2009). Action 3: A temporary program for the Treasury to purchase GSE MBS.
4. The two companies' MBS portfolios would be gradually increased until the end of 2009, then reduced by 10% per year starting in 2010. The Secretary attributed the need for action to the inherent conflict in the GSEs' structure and the decline in the housing market, stating that the ambiguity of their congressional charters had been perceived as indicating government support.

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