Sunday, September 07, 2008

Statement by Paulson on Fannie and Freddie

by Bill McBride on 9/07/2008 11:08:00 AM

From Treasury: Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers

  • Conservatorship

  • Preferred Stock Purchase Agreements
    Treasury has taken three additional steps to complement FHFA's decision to place both enterprises in conservatorship. First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth.
    ...
    With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.
    emphasis added

  • Important for some FDIC insured institutions:
    [C]onservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.


  • Secured Lending Facility.
    The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
  • Treasury to buy GSE MBS
    Treasury is initiating a temporary program to purchase GSE MBS.
    Fact Sheets from Treasury:

    FHFA Director Lockhart Remarks on Housing GSE Actions
    Fact Sheet: FHFA Conservatorship
    Fact Sheet: Treasury Preferred Stock Purchase Agreement
    Fact Sheet: Treasury MBS Purchase Program
    Fact Sheet: Treasury GSE Credit Facility