Government Takes Control of Fannie Mae, Freddie Mac - Black Enterprise
Black Enterprise Magazine September/October 2018 Issue

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The federal government yesterday took control of mortgage giants Freddie Mac and Fannie Mae in a dramatic attempt to shore up the nation’s weakened housing market.

“Through the four actions we have taken today, [the Federal Housing Finance Agency] and Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible,” Treasury Secretary Henry M. Paulson said Sunday. Over the next 30 days, the Treasury Department will be purchasing nearly $5 billion in mortgage bonds. Many expect that this will cause interest rates to decrease. Additionally, dividends on both common and preferred shares will be eliminated in an effort to conserve $2 billion. The Treasury Department will also buy preferred stock in Fannie and Freddie to provide security to debt holders and bolster housing finance.

Paulson said that he could not in good conscience provide an equity subsidy to the banks in their current form at the expense of taxpayers. The conservatorship, which began today, will eliminate the positions held by Fannie CEO Dan Mudd and Freddie CEO Dick Syron, but they will remain on board for a period of time to help with the transition. The FHFA will assume control of the board, and the vast majority of key professionals will remain in their jobs.

Together Freddie and Fannie own or back about $5.3 trillion in mortgages, which is about half the nation’s mortgage debt. The two government-sponsored enterprises were established to help create affordable mortgages and increase the availability of mortgage financing.

The situation to bail out Fannie and Freddie became evident last week when Freddie Mac was not able to sell mortgage bonds at a reasonable market value. The two enterprises have lost billions of dollars from high-risk bonds composed of defaulted home loans. Increased foreclosures over the past year have made it difficult for Fannie and Freddie to sell the debt and raise capital.

Jim B. Lockhart III, director of the FHFA, says yesterday’s action was attributed to a flawed business model embedded in the government sponsored enterprise (GSE) structure and to the ongoing housing correction.

“I have long said that the housing correction poses the biggest risk to our economy,” Lockhart says. “It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing.”

David Moffett, former CFO of U.S. Bancorp and senior adviser at the Carlyle Group, a private-equity firm, has been chosen to head up Freddie Mac. Herbert M. Allison, a former TIAA-CREF executive, was named chief executive officer of Fannie Mae.

The Treasury is hoping to help policymakers chart a course to resolve the systemic risk created by the inherent

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Marcia Wade Talbert

Marcia is a multimedia content producer focusing on technology at Black Enterprise Magazine. In this capacity she writes and assigns stories to educate readers about social media; digital integration; gadgets, apps, and software for business and professional development; minority tech startups; and careers in STEM (Science, Technology, Engineering, and Mathematics). In 2012, she received two Salute to Excellence Awards from the National Association of Black Journalists and was recognized by Blacks in Technology (BiT) as one of the Top 10 Black achievers in the tech arena for 2011 at SXSW in Austin, Texas. She has spoken about technology on panels for New York Social Media Week, at The 2012 Rainbow/PUSH Wall Street Summit, as well as at Black Enterprise’s Entrepreneurs Conference and Women of Power Summit. In 2011, chose her as one of 28 People of Color Impacting the Social Web, and through crowdsourcing she was listed as one of BlackWeb2.0's/HP's 50 Most Notable African American Tastemakers in Social Media and Technology for 2010. Since taking on the role of Tech editor in September 2010, she has conceived and produced five cover stories on Technology and/or STEM and countless articles, videos, and slideshows online. Before joining as an interactive general assignment reporter in 2008, she freelanced with Black Enterprise beginning in 2003 while working as the technical editor at Prepared Foods magazine. There she further honed her writing skills and became an authority on food ingredients, including ingredients used in food fortification and enrichment. Meanwhile, her freelancing with Black Enterprise and helped her stay current on issues pertaining to the financial and business welfare of African Americans. As a general reporter for Black Enterprise she attended and reported on the Democratic and Republican National Conventions, where she interviewed Valerie Jarrett, senior advisor and assistant to President Barack Obama and U.S. Attorney General Eric Holder. Marcia has a Bachelor of Science degree in Agriculture with an emphasis in food science from the University of Minnesota, and a Master of Science degree in journalism from Roosevelt University in Chicago. En route to her secondary degree, she served as the editor-in-chief of the Roosevelt University Torch, a weekly, student-run newspaper. An avid photographer and videographer, Marcia is one of several employees at BLACK ENTERPRISE who interned for the publishing company as a college student. She lives in New Jersey with her husband, a food scientist; her seventeen-month-old daughter; and “The Cat”, but still considers Chicago home.