Federal Government Takes Steps to Secure Fannie Mae, Freddie Mac

On Sunday, July 13th, the Federal Reserve and the Treasury announced that they had taken steps to provide support to Fannie Mae and Freddie Mac. The Board of Governors of the Federal Reserve System passed legislation allowing the Federal Reserve Bank to lend money to the Government Sponsored Agencies (GSEs).

Treasury secretary Henry Paulson announced a three-part plan that would provide aid to the GSEs if needed. Paulson’s plan includes increasing the GSEs’ lines of credit with the Treasury; currently the limit is $2.25 billion dollars for each GSE. He also proposed giving the Treasury authority to buy equity in the GSEs. In a testimony to the Senate Banking Committee on Tuesday, he stated that this authority would be in effect for no more than an eighteen-month period. There will be additional regulations determining when the GSEs could take advantage of either of these proposed changes.

Finally, in his plan the Federal Reserve Bank would take on an increased role in the new GSE regulator's establishment of new capital requirements. Paulson’s plan has been added to the housing bill currently with the House for revisions. President Bush urged Congress to pass this bill in a press conference on Tuesday.