Fannie Mae, Freddie Mac Under Government Takeover

It was announced this week that the Federal Housing Finance Agency (FHFA) has placed Fannie Mae and Freddie Mac into conservatorship and that the Treasury Department would provide financial support to the companies in order to stabilize the mortgage and financial markets, improve affordable housing opportunities and speed a housing recovery.

The exact timing and nature of the decision is somewhat surprising, since recent reports suggested the two companies would survive without tapping the government backstop. Director Lockhart stated that the move was required because Fannie and Freddie had become unable to balance pursuit of mission with safe and sound operation. Secretary Paulson cited the risk to the financial system of Fannie’s and Freddie’s large portfolios and said that he would not have opened access to the government backstop without the safeguard of conservator oversight. Both men said the immediate objective is to stabilize the mortgage and financial markets, improve affordable housing opportunities and speed a housing recovery.

"While it is unfortunate that we have reached this point, we are hopeful that the government's action on Fannie Mae and Freddie Mac will help to increase liquidity in the nation's mortgage markets and restore confidence in the global financial markets,” said Jerry Howard, executive vice president and CEO of the NAHB.

Conservatorship means the companies will function temporarily under management appointed by FHFA to operate the firms on FHFA’s behalf. The idea is to shore up the firms during the conservatorship period so they could return to independent operations on sound footing. The current CEOs, Fannie Mae’s Dan Mudd and Freddie Mac’s Dick Syron, are removed from their positions (along with the companies’ boards of directors) but will stay on as advisors during a transition period. The conservator CEOs will be Herb Allison (formerly vice chair of Merrill Lynch and chair of TIAA-CREF) for Fannie Mae and David Moffett (formerly vice chair and CFO of U.S. Bancorp) for Freddie Mac.

The senior officers and staff at NAHB will continue to monitor the situation very closely and keep members informed as significant events unfold. NAHB has also created a Housing Finance Task Force that is investigating the situation and developing recommendations for the Association to consider in order to preserve the interests of the housing industry.