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Understanding the Financial Crisis of Fannie Mae and Freddie Mac

Explore the timeline and implications of the financial crisis faced by Fannie Mae and Freddie Mac, delve into GSE financing elements, conservatorship implications, and the future of these entities. Discover the uncertainties surrounding their stability and impact on the economy.

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Understanding the Financial Crisis of Fannie Mae and Freddie Mac

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  1. Manuela Eburi Marissa Saleman and the financial crisis

  2. Fannie Mae • The Federal National Mortgage Association • FNMA • Established in 1938 • Was converted into a private shareholder-owned corporation in 1968 • Held mortgages it bought from mortgage banks

  3. Freddie Mac • Federal Home Loan Mortgage Corporation • FHLMC • Established in 1970 • Became a public entity in 1989 • Securitized mortgages originated by Savings & Loans Associations

  4. Timeline 2003 – March 2008

  5. Timeline April 2008 – August 2008

  6. Timeline August – September 2008

  7. Three Elements for GSE Financing During Conservatorship • Senior Preferred Stock Purchase Agreement • GSE MBS Purchase Program • GSE Credit Facility

  8. Implications of Conservatorship • GSE debt equals more than $5trillion • The US Treasury will have to purchase more stock as more GSE losses are recognized • What if…? • The government never stepped in? • The MBS’s were liquidated? • The government postponed stepping in?

  9. Spectrum of Stability

  10. The Future of Fannie and Freddie • SEC Regulation • Reducing Systemic Risk • Fannie and Freddie are Large Purchasers of Interest Rate Swaps

  11. The Future of Fannie and Freddie is Still Very Uncertain…

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