ANNOUNCED AS TEMPORARYNo
Bailout (capital injection or equity participation)
The Obama administration made a commitment on December 24, 2009 to provide expanded financial assistance to the semi-public mortgage firms commonly known as Fannie Mae and Freddie Mac. More formally known as the Federal National Mortgage Associationand the Federal Home Loan Mortgage Corporation, these two bodies purchase and securitize mortgages. They guarantee about half of the U.S. mortgage market. The administration's action allows the government to exceed the current $400 billion cap on emergency aid that had previously been approved by Congress.
The Treasury Department seized control of both companies in 2008. The new bailout commitment allows it to continue operating both entities through the rest of President Obama's term.
In announcing the terms of the expanded bailout, the Treasury stated that:
At the time the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship in September 2008, Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth. Treasury is now amending the PSPAs to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. At the conclusion of the three year period, the remaining commitment will then be fully available to be drawn per the terms of the agreements.
Neither firm is near the $200 billion per institution limit established under the PSPAs. Total funding provided under these agreements through the third quarter has been $51 billion to Freddie Mac and $60 billion to Fannie Mae. The amendments to these agreements announced today should leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis.
In its statement, the Treasury Department said the move "should leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis."
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