Federal Takeover of Fannie Mae and Freddie Mac - FHFA Initial Actions As Conservator

FHFA Initial Actions As Conservator

In the September 6, 2008 conservatorship announcement, Lockhart indicated the following items in the plan of action for the Federal Housing Finance Agency conservatorship:

1. On September 8, 2008, the first business day of the conservatorship, business will be transacted normally, with stronger backing for the holders of mortgage-backed securities (MBS), senior debt and subordinated debt.
2. The Enterprises will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month, without capital constraints.
3. As the conservator, the FHFA will assume the power of the Board and management.
4. The present Chief Executive Officers (CEOs) of both Fannie Mae and Freddie Mac have been dismissed but will stay on to help with the transition.
5. Appointed as CEOs are Herbert M. Allison for Fannie Mae and David M. Moffett for Freddie Mac. Allison is former Vice Chairman of Merrill Lynch and for the last eight years chairman of TIAA-CREF. Moffett is the former Vice Chairman and CFO of US Bancorp. Their compensation will be significantly lower than the outgoing CEOs. They will be joined by equally strong non-executive chairmen.
6. Other management action will be very limited. The new CEOs agreed it is important to work with the current management teams and employees to encourage them to stay and to continue to make important improvements to the Enterprises.
7. To conserve over $2 billion annually in capital, the common stock and preferred stock dividends will be eliminated, but the common and all preferred stocks will continue to remain outstanding. Subordinated debt interest and principal payments will continue to be made.
8. All political activities, including all lobbying, will be halted immediately. Charitable activities will be reviewed.
9. There will be financing and investing relationship with the U.S. Treasury via three different financing facilities to provide critically needed support to Freddie Mac and Fannie Mae, and also to the liquidity of the mortgage market. One of the three facilities is a secured liquidity facility, which will be not only for Fannie Mae and Freddie Mac, but also for the 12 Federal Home Loan Banks that are regulated by FHFA.