CRS Report for Congress
Prepared for Members and Committees of Congress
Options To Restructure Fannie Mae andFreddie Mac
N. Eric Weiss
Specialist in Financial EconomicsSeptember 9, 2009
Congressional Research Service
7-5700www.crs.govR40800
Options To Restructure Fannie Mae and Freddie MacCongressional Research Service
Summary
This report analyzes some options that Congress might wish to consider for the future of FannieMae and Freddie Mac, which are federally chartered, stockholder-owned corporations known asgovernment-sponsored enterprises or GSEs.As GSEs, Fannie Mae and Freddie Mac have special privileges and obligations. Their chartersgive them a close relationship to the federal government that was widely (but not universally)viewed as an implicit federal guarantee of their bonds and mortgage-backed securities. TheHousing and Economic Recovery Act of 2008 (HERA, P.L. 110-289), authorizes the Secretary of the Treasury to purchase unlimited amounts of obligations and other securities from the GSEs.On September 7, 2008, the GSEs agreed to allow the Federal Housing Finance Agency to takeover management of the GSEs by placing them under conservatorship. While underconservatorship, the GSEs have assumed a leading role in efforts to resolve and preventforeclosure. As of the middle of 2009, the Treasury and the Federal Reserve had purchased$833.3 billion of mortgage-backed securities (MBS), $82.8 billion of debt, and $92 billion of senior preferred stock from Fannie Mae and Freddie Mac.The options analyzed in this report include returning Fannie Mae and Freddie Mac to stockholdercontrol as GSEs, merging them into the federal government as part of a government agency(sometimes called nationalization), and privatizing them. In addition, this report examines co-opinsurance, a utility regulation model, government reinsurance, and the role of private bonds inhome finance markets.In addition to considering the future of Fannie Mae and Freddie Mac, Congress might wish toconsider the future of the third housing GSE, the Federal Home Loan Bank System.This report will be updated as warranted by legislative developments.
Options To Restructure Fannie Mae and Freddie MacCongressional Research Service
Contents
Introduction................................................................................................................................1
Fannie Mae’s and Freddie Mac’s Business Models......................................................................3
GSE Financial Status...................................................................................................................4
Alternatives to Liquidation....................................................................................................4
“Bad Bank” Option...............................................................................................................5
Restructuring Senior Preferred Stock.....................................................................................5
Receivership.........................................................................................................................5
Restructuring Options.................................................................................................................5
Options Maintaining GSE Status...........................................................................................7
Option: Return Control to Stockholders...........................................................................7
Option: Retain GSE Status with Additional Regulation....................................................9
Option: Retain GSE Status with Explicit Guarantee.......................................................10
Option: Retain GSE Status with Utility Model...............................................................11
Option: Split the GSEs..................................................................................................11
Option: Incorporate Fannie Mae and Freddie Mac into Federal Home Loan Bank System.......................................................................................................................12
Option: Issue Additional GSE Charters..........................................................................13
Options Eliminating GSE Status..........................................................................................13
Option: Government Agency.........................................................................................14
Option: Privatization.....................................................................................................15
Option: Privatization with Co-Op Insurance..................................................................15
Supplementary Options.......................................................................................................15
Reinsurance..................................................................................................................16
Covered Bonds.............................................................................................................16
Legislative Action.....................................................................................................................17
Tables
Table 1. Government Financial Support for Fannie Mae and Freddie Mac...................................2
Table 2. Summary of GSE Restructuring Options........................................................................6
Contacts
Author Contact Information......................................................................................................17
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