Treasury Takes Over Fannie Mae, Freddie Mac

WASINGTON, D.C. — SEPT 7, 2008 — The Treasury Department and the Federal Housing Finance Agency, with support from the Federal Reserve, announced actions today regarding the housing government sponsored enterprises to protect the financial system, to support the housing market, and to protect the taxpayers.

Comments by Treasury Secretary Henry M. Paulson, Jr., Sept.
7, 2008:

In July, Congress granted the Treasury, the Federal Reserve and FHFA new
authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since
that time, we have closely monitored financial market and business conditions
and have analyzed in great detail the current financial condition of the
GSEs – including the ability of the GSEs to weather a variety of market
conditions going forward. As a result of this work, we have determined that
it is necessary to take action.

Since this difficult period for the GSEs began, I have clearly stated
three critical objectives: providing stability to financial markets, supporting
the availability of mortgage finance, and protecting taxpayers – both by
minimizing the near term costs to the taxpayer and by setting policymakers
on a course to resolve the systemic risk created by the inherent conflict
in the GSE structure.

Based on what we have learned about these institutions over the last four
weeks – including what we learned about their capital requirements – and
given the condition of financial markets today, I concluded that it would
not have been in the best interest of the taxpayers for Treasury to simply
make an equity investment in these enterprises in their current form.

The four steps we are announcing today are the result of detailed and
thorough collaboration between FHFA, the U.S. Treasury, and the Federal
Reserve.

We examined all options available, and determined that this comprehensive
and complementary set of actions best meets our three objectives of market
stability, mortgage availability and taxpayer protection.

Throughout this process we have been in close communication with the GSEs
themselves. I have also consulted with Members of Congress from both parties
and I appreciate their support as FHFA, the Federal Reserve and the Treasury
have moved to address this difficult issue.

Before I turn to Jim to discuss the action he is taking today, let me
make clear that these two institutions are unique. They operate solely in
the mortgage market and are therefore more exposed than other financial
institutions to the housing correction. Their statutory capital requirements
are thin and poorly defined as compared to other institutions. Nothing about
our actions today in any way reflects a changed view of the housing correction
or of the strength of other U.S. financial institutions.