US nationalises Fannie and Freddie
The US government has moved to ‘temporarily’ nationalise stricken mortgage lenders Fannie Mae and Freddie Mac
WASHINGTON, DC – The US government has rescued the mortgage lenders Fannie Mae and Freddie Mac, confirming market expectations by taking responsibility for almost half of the $12 trillion of US mortgage debt.
The move, dubbed ‘conservatorship’, means temporary nationalisation of the two state-sponsored lenders, and marks the moment when the long-presumed unwritten guarantee of the two lenders was finally tested.
Fannie and Freddie had already run up debts of over $1.6 trillion over the past 12 months, mostly as a result of the fall in house prices brought on by the failure of the subprime mortgage sector.
The US government had already agreed to buy up shares in the two lenders, in addition to initiating Treasury protection schemes guaranteeing their debts. Yesterday’s agreement marks the end of that process.
Chairman of the Federal Reserve, Ben Bernanke, said in a statement: “I strongly endorse both the decision by FHFA [Federal Housing Finance Agency] director [James] Lockhart to place Fannie Mae and Freddie Mac into conservatorship, and the actions taken by Treasury secretary [Henry] Paulson to ensure the financial soundness of those two companies.”
He said: “These necessary steps will help to strengthen the US housing market and promote stability in our financial markets. I also welcome the introduction of the Treasury's new purchase facility for mortgage-backed securities, which will provide critical support for mortgage markets in this period of unusual credit-market uncertainty.”
Fannie Mae and Freddie Mac were created by President Roosevelt in 1938, as part of his ‘New Deal’ to provide liquidity to the US mortgage market during the Great Depression, before privatisation in 1968.
Fannie Mae and Freddie Mac – after already undergoing boardroom purges within the past month – are now under the control of the FHFA.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Fed’s Basel III rollback gives clearing units a capital break
Client-cleared trades will be exempt from CVA charges and G-Sib surcharge calculations, says Barr
DTCC ‘will prevail’ in UST clearing, says CME’s Duffy
CME boss says LCH-FMX cross-margining deal could face obstacles, and acknowledges difficulties at BrokerTec
The standoff over separate account margining
CFTC issues sixth extension of no-action relief as long-awaited final rule stalls
Banks fret over vendor contracts as Dora deadline looms
Thousands of vendor contracts will need repapering to comply with EU’s new digital resilience rules
EU banks lose relief on model test after FRTB delay
Deferment of new trading book regime to January 2025 eats into transition period for “erratic” P&L attribution test
Sunday night football and the Basel III endgame
Big banks, political advocates and housing organisations are unlikely allies in race to dropkick new capital regime
Futures exchanges seek clarity on China licensing regime
Hazy details on landmark Futures and Derivatives Law breeds legal uncertainty, unnerving operators
Some EU banks wanted option to start FRTB on time
Representatives of member states raised possibility with European Commission at July meeting discussing the delay