GSE stock purchase

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The GSE stock purchase. The Treasury Department is loaning hundreds of billions to Fannie Mae and Freddie Mac through purchases of preferred stock in order to maintain their liquidity in the face of mounting losses in the housing market. The program was initially capped at $100 billion each for Fannie and Freddie in September 2008, but that was increased to $200 billion each in February 2009 and the cap was lifted entirely on December 24, 2009.

Wall Street Bailout Accounting
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GSE STOCK PURCHASE
Balance Sheet
Disbursed*: $164.4B [1]
Current outstanding: $164.4B [2]
Public Funds
Maximum at-risk: Unlimited [3]
Current at-risk: $164.4B [4]

* See the methodology and glossary for definitions of "disbursed," etc.

Funding agency and aid type

The funding agency was the Treasury Department.

Cash loans to Fannie Mae and Freddie Mac.

As of July 2011, the last released quarterly disclosure by the Federal Housing Finance Authority, at the end of 2010, stated that the total Treasury funds under FHFA conservatorship were $153.9 billion ($90.2 billion for Fannie Mae and $63,700 for Freddie Mac).[5] Since then, Fannie and Freddie have released individual releases stating a total Treasury funding of $164.4 billion ($64.7 billion for Freddie Mac[6] and $99.7 billion for Fannie Mae[7]).

While Fannie and Freddie have both paid billions in dividends to the Treasury, these do not count against the total interest held by Treasury.

Who benefits

Investors in real estate and mortgage-backed securities; mortgage borrowers (keeping Fannie and Freddie afloat is a prop to the entire housing industry).

Background

SIGTARP (July 2009):

“GSE Preferred Stock Purchase Agreements (“PSPA”) — Total Potential Support: $400 Billion. HERA provided temporary authority for Treasury to purchase obligations of the housing GSEs. In September 2008 FHFA, established under HERA to oversee the housing GSEs, put Fannie Mae under Federal conservatorship, and Treasury entered into a Preferred Stock Purchase Agreement (“PSPA”) with Fannie Mae to make investments of up to $100 billion in senior preferred stock as required to maintain positive equity. According to the White House’s FY 2010 budget document, “On February 18, 2009, Treasury announced that the funding commitments for the PSPA would be increased to $200 billion. As of April 16, 2009, Fannie Mae has received $15.2 billion under the PSPA.” Similarly, in September 2008, FHFA put Freddie Mac under Federal conservatorship and Treasury entered into a PSPA with Freddie Mac to make investments of up to $100 billion in senior preferred stock as required to maintain positive equity. On February 18, 2009, Treasury announced that the funding commitments for the Freddie Mac PSPA would be increased to $200 billion, the same as Fannie Mae’s commitment. As of April 16, 2009, Freddie Mac has received $44.6 billion under the PSPA. According to Treasury’s FY 2010 budget, “the function of the PSPAs is to instill confidence in investors that Fannie Mae and Freddie Mac will remain viable entities critical to the functioning of the housing and mortgage markets.”

Prins’ analysis: “The Treasury has bought $200 million in preferred stock from Fannie Mae and another $200 million from Freddie Mac to show that they "will remain viable entities critical to the functioning of the housing and mortgage markets.”[8]

Notes

The cap on investments was lifted entirely on Dec. 24, 2009.

Repayment: This program has already experienced short-term losses because it is covering Fannie and Freddie’s mounting losses in the housing sector. It may be possible for those to be made up in the short term.

Articles and resources

Related SourceWatch articles

References

  1. See below.
  2. See below.
  3. U.S. Treasury press release, “Treasury Issues Update on Status of Support for Housing Programs,” Dec. 24, 2009, http://www.treas.gov/press/releases/2009122415345924543.htm, accessed Mar. 10, 2010.
  4. See below.
  5. "Summary of Capital Position (dollars in millions) with Treasury Senior Preferred Draws," Federal Housing Finance Authority, available at http://www.fhfa.gov/Default.aspx?Page=78
  6. "FREDDIE MAC REPORTS FOURTH QUARTER AND FULL-YEAR 2010, FINANCIAL RESULTS" (press release), Freddie Mac, Feb. 24, 2011.
  7. "Fannie Mae Reports First-Quarter 2011 Results" (press release), Fannie Mae, May 6, 2011.
  8. Prins’ Mother Jones analysis. Dec. 21, 2009.

External resources

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