Fannie Mae-No Politics (FNMA)

[tutt1126]

What Other Actions Has the Federal Government Taken to Address the Financial Condition of the GSEs?

Conservatorship and the support agreements with Treasury are not the only actions that the federal government took to support Fannie Mae and Freddie Mac.

On July 15, 2008, the SEC issued an emergency order restricting short selling in the stock of 19 financial institutions, including Fannie and Freddie.57 The SEC acted to prevent the possibility that false rumors could drive share prices down and cause the market to lose confidence, thereby cutting off the firms' access to credit markets, as happened to Bear Stearns in March 2008. The order restricting short sales of Fannie Mae and Freddie Mac stock was renewed on July 29, 2008, and expired on August 12, 2008.

The government has also taken steps to prepare for possible future support for the GSEs. On July 13, 2008, the Federal Reserve Board of Governors granted the New York Fed the authority to lend directly to the GSEs.58 Section 1118 of HERA requires the new GSE regulator to consult with the Fed to ensure financial market stability.

In addition to the Fed's existing general authority to be a lender of last resort, the GSEs' charters give the GSEs a special relationship to the nation's central bank.59 The Fed uses the GSEs' bonds purchased on the secondary market for open market operations.60 These bond purchases could indirectly help the GSEs by adding to the demand for their debt and increasing their liquidity.

The Fed announced that it would conduct a special program to purchase GSE debt and MBSs in calendar year 2009 and the first quarter of 2010.61 Under this program, the Fed purchased more than $1 trillion of GSE debt and GSE-issued MBSs.

In programs that started in September 2008 and ended in March 2010, the Fed and Treasury together purchased more than $1.1 trillion in MBSs.62 On September 21, 2011, the Fed decided to begin reinvesting MBS principal repayments in other MBSs.63 As of March 6, 2016, the Fed held $1.4 trillion of Fannie Mae's and Freddie Mac's MBSs.64