Freddie (FRE) & Fannie (FNM) 01 (May 08 - Feb 12)

[LenaHuat]

Hi MM
Wow, interesting things abt Obama are now surfacing Call it a woman's intuition or whatever, there is something too slick abt him. Can't trust this senator to be in charge

[kennynah]

the reasons for wanting to be in the senate and eventually the president's office are unequivocally only 2 things :

money and power

and this happens in every country on planet earth

[millionairemind]

Published September 10, 2008
Some hedge funds win big on Freddie, Fannie bets

(BOSTON) Hedge fund managers who bet that housing finance companies Fannie Mae and Freddie Mac would plummet further won big on Monday.

'We are still short,' said Douglas Kass, head of hedge fund Seabreeze Partners Management, as the two widely held mortgage companies' stock prices plunged to below US$1 a share after the US government seized the companies over the weekend.

People familiar with Mr Kass' fund said he is up about 25 per cent this year, ranking him among a small group of investors who turned conventional wisdom on its head and delivered huge gains while long-time investment icons like Bill Miller got it wrong.

Similarly, William Ackman's Pershing Square Capital Management made money on Fannie and Freddie, thanks to the manager's early warnings of an impending credit crisis and bets against the companies, a person familiar with the fund said.

For some short-sellers, Fannie and Freddie gave them new legitimacy in a world in which their research skills were sometimes ridiculed, investors said.

'I don't know how they could get it so wrong. There were so many red flags. I feel sorry for them,' said one hedge fund manager, who asked not to be identified, echoing several other managers' thoughts.

'They' referred to the investment industry's most gifted stock pickers whose bets on beaten down stocks have often paid off handsomely.
This time, though, faulty research led some managers to take the wrong positions at the wrong time, Mr Kass said.

Legg Mason Inc star manager Bill Miller, the only man to have beaten the Standard & Poor's 500 index for 15 straight years, said in August he increased his holdings in Freddie shares to roughly 79.8 million from about 50 million. That made Legg Mason the largest shareholder in the stock. In July, Mr Miller said there was a 'frenzy' over the capital concerns of the mortgage companies.

With his flagship fund off 31 per cent, Mr Miller is experiencing what may be the worst year in his career, possibly putting pressure on the 53-year-old manager to step aside, several analysts and fund managers said.

New data show that hedge funds, which often promise to make money in all markets, are delivering their worst returns in a decade.

In the first eight months of the year, the average hedge fund lost 4.83 per cent, according to data from Hedge Fund Research. In 1998, when hedge fund Long Term Capital Management collapsed, the average fund was off 5.5 per cent, HFR, the Chicago-based fund tracking firm said.

'It is taking longer to work out the subprime mess than most people anticipated,' said Sol Waksman, who heads hedge fund research group BarclayHedge. 'The subprime mess started in the fixed income markets but now it is a problem in the stock market and not just the US markets.'

In August the average hedge fund lost 1.37 per cent with funds specialising in emerging markets suffering the biggest losses. The HFRI Emerging Markets Index fell 5.02 per cent. -- Reuters

[ishak]

Paulson Sends Message to Freddie, Fannie Employees: Don't Leave

Sept. 10 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is meeting with employees of Fannie Mae and Freddie Mac to ward off a tide of defections after the government seized control of the beleaguered finance companies.

Paulson spoke in a town hall meeting at Freddie's McLean, Virginia, headquarters yesterday and will talk to Fannie workers in Washington today, Treasury spokeswoman Jennifer Zuccarelli said. Shares of the companies have declined more than 97 percent this year and are trading at less than $1.

“Maintaining and keeping that talent base is going to be a challenge for them,'' said Moshe Orenbuch, an analyst at Credit Suisse Group in New York. “That's something they're going to be wrestling with much sooner rather than later in terms of retaining and attracting talent.''

After replacing the two chief executive officers of Fannie and Freddie, Paulson and the Federal Finance Housing Agency now are turning their attention to the 10,000 people left behind. FHFA, the regulator that assumed control of the companies, hired a consulting firm to work with the human resource teams on a new employee-retention program, FHFA Director James Lockhart said in an interview.

“Employee retention is very important,'' Lockhart said. “We still need people to run the companies.''

Lockhart ousted Fannie CEO Daniel Mudd and inserted Herb Allison, former CEO of TIAA-CREF, and replaced Freddie's Richard Syron with David Moffett, an executive at the Carlyle Group. Paulson shared the stage with Moffett yesterday and will stand beside Allison today.

‘Important Work'

At the meetings, Paulson “wanted to let them know how important these companies are to our markets and to getting through the housing correction,'' Zuccarelli said. “He also encouraged them to continue their important work.''

Government-chartered Fannie and Freddie own or guarantee almost half the $12 trillion of U.S. residential mortgages. Fannie dates back to 1938, when it was created as part of Franklin D. Roosevelt's New Deal. Freddie was formed in 1970 to compete with Fannie.

The Treasury and FHFA took control of Fannie and Freddie last weekend after a team of federal examiners found their capital reserves were too thin to weather the worst housing market since the Great Depression.

‘Difficult Times'

Paulson and the FHFA eliminated the companies' common and preferred dividends and the Treasury said it would buy as much as $200 billion of preferred stock in the companies to bolster their capital as needed. The decision sent Fannie shares down 90 percent to 73 cents the next day. They rose to 99 cents yesterday. Freddie slumped 82 percent to 88 cents and was little changed yesterday.

The declines have left the stock options and restricted share grants that both companies used to reward employees virtually worthless. FHFA's Lockhart said the agency is seeking new incentives to attract and retain talent.
After seizing the companies, the FHFA sent in a team of about 60 examiners to shadow top executives, including Allison and Moffett.

“These are difficult times,'' Allison, 65, told hundreds of Fannie's 5,000 employees gathered in the company's Great Hall at its colonial-style Washington campus on his first day as CEO Sept. 8, according to employees who attended the meeting and declined to be identified because they weren't authorized to speak.
Allison was CEO of TIAA-CREF until April and before that was President of Merrill Lynch & Co. Moffett, 56 was chief financial officer of U.S. Bancorp in Minneapolis from 2001 until early 2007 before joining Carlyle, the Washington-based private- equity firm.

Seeking Sneakers

A chief concern among Fannie employees on Sept. 8 was whether the company would still sponsor its Help the Homeless Walkathon, an annual event scheduled for Nov. 22 and anticipated to attract 12,000 participants in Washington, according to its Web site.

Allison, who lives in New York and said he has been living out of a suitcase the past few weeks, assured the assembly the event would go ahead as planned, and that he would attend.
“I may have to get someone to send me my sneakers,'' he said.

[millionairemind]

Guess who won when Bill Miller and other value funds lost big???

The $1.7 Billion Payday: Guess Who Made a Killing on the Bailout?
by Justice Litle, Editorial Director, Taipan Publishing Group

As we saw on Wednesday, you had a lot to say on the Bill Miller / Freddie Mac debacle.

A few of you took up the conspiracy angle (which I didn’t find time to address):

I always wonder what is behind the scenes on things of this nature. Why was Bill Miller set up to be the fall guy? Or was he? How much REAL power did he have over the situation? Or did he have any?
-- TD Reader Bonnie M.

My bet would be that [Miller] had an inside man who assured him he was in a winning position. When politics got involved, his man couldn't deliver and he got hung out to blow in the wind.
-- TD Reader S.

Oh, you can bet politics were involved.... and those who played their cards right made a killing. Miller just happened to be the fish at the table this time around. (You know that old poker saying: “If you’ve been sitting at the table for an hour and still don’t know who the fish is... then the fish be you.”)

When it comes to reading the tea leaves, Bill Gross was the true virtuoso. He’s the guy whose fund made $1.7 billion in a single day off the Fan and Fred bailout... even as Miller and Legg Mason lost their shirts.

How did Gross do it? He loaded up on debt rather than equity. Gross knew full well that while the Fannie and Freddie stockholders would get screwed, the bondholders would be saved.

Let me explain a little more…

Bill Gross (a.k.a. “the Bond King”) is the manager of the Pimco Total Return fund, a whopping monster of a bond fund with more than $130 billion in assets.

Over the first six months of the year, Gross had moved more than 60% of his fund -- close to $80 billion -- into mortgage debt. What did Gross know that Miller didn’t? He knew that, come what may, mortgage-backed bond holders would have to be bailed out, no matter what... because of the global politics of who else owns that mortgage debt.

For example, guess who was sitting on a massive $15-20 billion pile of FNM and FRE debt as recently as June?

The Bank of China.
They’ve sold off a good chunk since then, but that’s just one Chinese bank -- and just the tip of the iceberg as far as Chinese financial institutions loading the boat.
Last year, according to Reuters, China on the whole had accumulated as much as $376 billion worth of U.S. “agency” debt -- meaning the bonds of federal-related outfits like Ginnie Mae, Fannie Mae and Freddie Mac.

The upshot is, Treasury Secretary Paulson was happy to make an example out of equity investors like Miller, who knew they were taking a big risk in pursuit of a big return.

But no way, no how was Paulson about to blow out the holdings of one of America’s top creditors (China).

By some estimates, China has now amassed as much as $1.6 trillion in foreign reserves, with more than two-thirds of that parked in U.S. debt instruments (agency debt, treasury bonds and so on). Burn those guys in a bailout plan? You’ve got to be kidding. Fiscally speaking, that would be like shooting ourselves in the foot with a machine gun.

So Gross had a pretty good lock on the situation. He knew it was sharp to align his interests with China’s. And to further ensure a positive outcome, the Bond King took every opportunity by ranting and raving from his soapbox -- a mighty big soap box -- about how government should be on the lookout for mortgage holders, and how letting mortgage owners suffer would be a travesty.

When news came out that the Fannie and Freddie debt holders would indeed be kept whole (as China demanded and Gross knew would happen), the value of those debt holdings soared, giving Gross a $1.7 billion pop in the value of his fund.

It was a bailout done right in the sense of protecting the players that mattered... and making an example of the ones who didn’t. (Whether it was right in moral or strategic terms is a whole other kettle of fish.)

The lesson? If you’re going to play the game for ultra-high stakes, you have to know the players at the table and what they’re about. Gross did. Miller didn’t.

On a related note, these thoughts of conspiracy and backroom dealings got me thinking: Where is the plunge protection team?

We’ll dig into that question next week... and I’ll share my controversial thoughts with you in full. (What, us… controversial? Nah!) In the meantime, if you have any thoughts on the PPT or their doings, feel free to send ‘em my way: [email protected]

Have a great weekend,

JL

[winston]

China Daily

China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation's biggest investment banks.

Related readings:
China's forex reserve reaches $1.809 trillion by June
Subprime impact limited on major Chinese banks

The US government this week seized control of the two mortgage-finance companies, which account for almost half of the home-loan market in the world's biggest economy, to prevent defaults from crippling them. China holds up to $400 billion in the two firms' debt, CICC Chief Economist Ha Jiming said in a report Thursday.

"The crisis has made Chinese officials realize it's a bad idea to put all their eggs in one basket," wrote Hong Kong-based Ha. "This will likely lead to greater diversification of foreign exchange reserve investments."

China held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, he said.

[ishak]

White House keeps Fannie, Freddie off budget
Reuters, 13 Sep 2008

The director of the White House Budget Office on Friday said that operations of mortgage companies Fannie Mae and Freddie Mac seized by the government last week should not be treated as part of the federal budget.

'While the GSEs (government-sponsored enterprises) will not be included in the budget at this time, I will continue to monitor closely the implementation of the government's arrangement ...and may revisit their budgetary status in the future, if conditions change,' Office of Management and Budget director Jim Nussle said.

The Treasury Department and Federal Housing Finance Agency announced last Sunday the two companies were being seized and placed in a conservatorship. Treasury will take an equity stake in them in order to ensure they have enough capital to continue operating.

[ishak]

Be Wary of Buying When Shares Tank
Washington Post, September 14, 2008

If you're thinking the stocks of Fannie Mae and Freddie Mac are bargains that may regain their highs of the glory days -- be very careful. You may not win this bet.

I've seen it before, the stock of a troubled but venerable public company that once traded for good money drops to penny stock territory. Investors, gambling that the shares will rise from the ashes like the mythical Phoenix, go on a buying binge.

But for the average individual investor, this is a place where only the well-heeled or experienced should go.

Fannie Mae and Freddie Mac were taken over by the federal government Sept. 7 in an effort to rescue the companies from further financial disaster. The two companies were chartered by the government to help increase homeownership in this country by buying mortgage loans.

The entities were also publicly traded companies that sold shares of common stock. In the past year, the stock has suffered significantly. Fannie Mae's stock declined from a 52-week high of $68.60 to a close of just 73 cents on Sept. 8, the day after the Treasury Department announced the takeover. Freddie Mac went from a 52-week high of $65.88 to 88 cents.

What many common shareholders fail to realize is that as the owners of a company, they are last in line for claims on assets. So if the company enters bankruptcy protection or conservatorship, as Fannie Mae and Freddie Mac have, there's a good chance your shares will become worthless.

"One would be speculating if they were to buy the stock now in hopes that it would increase in value," said Fred Joseph, Colorado securities commissioner and the president-elect of the North American Securities Administrators Association, which represents state securities regulators.

Fannie Mae and Freddie Mac are not under bankruptcy protection. I just want to make that clear. Instead, the companies are under conservatorship, which is the legal process in which a person or entity is appointed to establish control and oversight of a company to put it in a sound and solvent condition.

In this case, the newly formed Federal Housing Finance Agency (FHFA) has been appointed as conservator of the two companies.

Here's where it gets interesting, if you own or are thinking about buying the stock. As part of the takeover, the Treasury and FHFA have established "preferred stock purchase agreements." These instruments essentially put the government in a preferred position. The action was taken to ensure that each company maintains a positive net worth, said James Lockhart, director of the new independent regulator.

The agreements were also necessary to provide security and clarity to debt holders -- senior and subordinated, Lockhart said.

"Under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares," he said.

That means there is no guarantee that current shares of the company will be worth anything when or if Fannie Mae and Freddie Mac come out from under the conservatorship.

"Market discipline is best served when shareholders bear both the risk and the reward of their investment," Lockhart said. "While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise."

If taxpayers end up significantly bailing out the companies, it's not likely there will be any value left for shareholders.

"This is so unique," Joseph said. "It's hard to tell what will happen to the stock or the stockholders."

We certainly know what happens in many corporate bankruptcy cases. For example, last year American Home Mortgage Investment of Melville, N.Y., once a major mortgage lender, filed for Chapter 11.

Its stock closed in over-the-counter trading at 28 cents. That was down from a 52-week high of $36.40.

In its news release, included in a SEC filing, American Home Mortgage said that realistically, there would be no shareholder equity value remaining.

Nonetheless, more than 1.8 million shares traded after the bankruptcy announcement. Some of that activity was probably shareholders trying to lock in their losses for tax purposes. But no doubt some was done by investors bargain-basement shopping.

Individual investors who bought the prebankruptcy stock of Kmart felt cheated when the shares ended up worthless.

Kmart made retail history in 2002 when it became the largest merchant ever to seek bankruptcy protection. In its SEC filings, the company made it clear that the old stock would be canceled and that buying it was highly risky. And yet the day Kmart and its U.S. subsidiaries and affiliates emerged from Chapter 11, 91 million shares changed hands before trading was canceled.

"A lot of people see a buying opportunity at the bottom, but you have to be real cautious," Joseph said.

Consider yourself warned.

[millionairemind]

Freddie and Fannie bank losses grow
By Saskia Scholtes in New York

Published: September 23 2008 00:08 | Last updated: September 23 2008 00:08

US regulators have underestimated potential bank losses on preferred stock issued by Fannie Mae and Freddie Mac, the American Bankers Association said on Monday.

Nearly a third of US banks hold preferred stock issued by the two mortgage financiers that were taken into conservatorship this month, according to an industry survey conducted by the ABA. The average bank exposure to such securities relative to core equity capital was 11 per cent.

EDITOR’S CHOICE
Full coverage: Global financial crisis - Sep-16Video: John Authers on market response - Sep-16Gillian Tett: The era of leverage is over - Sep-22Comment: Washington must heed alarm bell - Sep-22Editorial Comment: Paulson’s plan still needs some work - Sep-22Editorial Comment: One size fits all - Sep-22“The negative impact on banks – particularly Main Street community banks – is far greater than regulators first thought,” wrote Edward Yingling, chief executive of the ABA in a letter to the Treasury, the Federal Reserve and other banking regulators.

The government takeover of Fannie and Freddie all but wiped out the value of $36bn of their preferred shares. This would force exposed banks to take writedowns at the end of the third quarter that could impede future lending, the ABA warned.

“When the actions were contemplated to reduce dividends on Fannie Mae and Freddie Mac preferred stock, the bank regulators estimated that only a dozen banks would be affected by it,” Mr Yingling said.

Regulators said this month only a small handful of banks had “significant” holdings in Fannie Mae and Freddie Mac relative to their capital bases and that they would help develop plans to restore capital at these banks.

However, the ABA survey suggests the impact of writedowns could be more widespread and more severe than regulators initially indicated, particularly among small community banks that engage in lending for small and medium-sized local businesses.

The ABA’s letter called for regulators to reconsider the suspension of dividend payments on Fannie and Freddie preferred stock to alleviate the capital impact on banks and avoid a multi-billion dollar decline in lending.
Copyright The Financial Times Limited 2008

[kennynah]

Testimony of Herbert M. Allison, Jr.
President and Chief Executive Officer
Fannie Mae
Hearing before the House Committee on Financial Services
Washington, D.C.
Thursday, Sept. 25, 2008

especially if you are vested in FNM, or are thinking of vesting interest in their shares...you should be interested to read this long article...

at least, one gets a clear idea of what FNM does, besides providing cheap mortgage loans to american home owners.... one understands the other key function is to insure mortgage backed securities from other loaning institutions as well, thereby creating further liquidity for further loans... this is how capitalistic society stretches that $1 used effectively over and over again, as opposed to printing $1 for need of every $1. the latter will dilute money's face value.

one may conclude that unless some one else does this key social function, FNM and FRE cannot be allowed to fail without throwing their society back to the stone age period.

*********

(Opening Statement as Submitted to the Committee)
"Oversight Hearing to Examine Recent Treasury and FHFA Actions Regarding the GSEs"
Chairman Frank, Ranking Member Bachus and members of this committee, thank you for
inviting me to testify today.

The Federal Housing Finance Agency placed Fannie Mae into conservatorship on Sept. 6.
As Director Lockhart announced the following day, this step was taken to stabilize
Fannie Mae and ensure its safety, soundness and solvency, and to reduce the growing
systemic risks to the mortgage finance system.

You asked me to address how we are pursuing our mission to support the mortgage
market, provide liquidity, and prevent foreclosures since the conservatorship began.
The government’s actions have given Fannie Mae the responsibility and the flexibility to
expand our service to the market and provide more liquidity. Under this conservatorship
our job is to balance the needs of safety and soundness and taxpayer protection with the
imperative that we provide the most support possible to the mortgage market. We are
acutely aware of our public purpose.

We have been working closely with our conservator, Treasury and the Federal Reserve to
achieve this balance. We are committed to being as transparent as possible with
Congress and the American public about our actions and results.

We are focused on meeting the goals of the conservatorship — conserving our assets,
restoring sound operations and meeting our mission. We communicate daily with FHFA
and have been assuring that their needs for Fannie Mae data and planning are met. With
this foundation and with the Department of the Treasury’s backstop, we are mindful that
we need to operate in a safe and sound manner and we need to move quickly to perform
our role as a core stabilizing factor in the markets.
Let me respond to the specific matters you asked me to address.

The Past Three Weeks
At the outset of the conservatorship, our top priority was to ensure our business continued
uninterrupted, and to make clear to our customers and the market that Fannie Mae is open
for business.

• In spite of extreme market turbulence and disruption, we continued to provide a
steady supply of funding to U.S. single-family and multifamily lenders during this
period. We securitized about $31 billion in single-family mortgages during the
first three weeks of September, an amount roughly equal to our securitization
volume in the first three weeks of August, despite a much more challenging
market during this month.

• Days after the conservatorship became effective, we sold $7 billion in two-year
Benchmark Note debt securities to global investors, allowing us to make
additional mortgage purchases to support the market. This was the largest debt
issuance of this kind in our history, and the rates we received were substantially
better than the rates before the conservatorship. The result demonstrated renewed
market confidence in the GSEs following the government’s action.

• Our multifamily business has continued unabated. Director Lockhart made clear
in his statement of September 12 that our continued leadership in, and support for,
affordable rental properties is a key component of the conservatorship. We are
committed to meeting that directive.

• A key test of our market impact is mortgage rates – the cost of financing a home.
Primary mortgage market rates, especially for 30-year fixed rate conforming
loans, fell in the days after the conservatorship commenced. We are working to
build on this so that the tightening of yields seen in the mortgage-backed
securities market results in savings to consumers.

• We are continuing our contractual relationships, which has assured both investors
and contractors of our stability and ongoing business plans.

• Lastly, we have an excellent non-executive chairman who is working on
reconstituting our board to provide advice and guidance to the firm in line with
the obligations of the conservatorship.
Keeping People in Their Homes

Let me take this opportunity to report briefly on some of the steps Fannie Mae has taken
to help reduce home foreclosures and provide liquidity to the market:
• Because preventing foreclosures is a staff-intensive, high-touch business, we have
increased staffing in our servicing operations center in Dallas, Texas. We are
currently working with our major servicers to ensure as few loans as possible go
to foreclosure referral, and not before all alternatives to foreclosure, such as
repayment plans, forbearance and modifications, are fully explored.
• We are in the process of increasing our use of specialty servicers skilled in
problem loan workouts, and have revamped all of our servicer incentives to
encourage them to change their own processes so no borrower who needs help
falls through bureaucratic cracks.
• We have also provided bridge loans this year to nearly 38,000 homeowners who
fell behind because of a serious illness, job loss or other temporary issue.
• Finally, Fannie Mae has provided $1 trillion of liquidity through its guaranty and
purchases since early last year, or about $3 billion a day. Our share of new singlefamily
mortgage-backed securities issued was 48 percent for the first half of the
year.

Preparing to Do More
However, given the scale of the current crisis, these actions clearly are not enough. The
responsibility entrusted by the government to us when it provided the capital and
liquidity facilities requires that we do far more to stabilize the market, prevent
foreclosures and provide liquidity so that creditworthy borrowers continue to have access
to affordable mortgages.
We are looking at every aspect of our business, with the goal of improving our funding,
pricing, trading, risk management and foreclosure-prevention efforts. New initiatives that
take greater advantage of Fannie Mae’s breadth and size may entail risks and costs in the
short-run, but will have long-run benefits to the country and Fannie Mae by helping
staunch the flow of foreclosures, encourage homeowners to ride out the cycle, and help
put a floor under home prices.

To that end, we are:
• Examining our underwriting and pricing standards to assure that the appropriate
balance is struck between expanding our activities and safeguarding the interests
of taxpayers.
• Increasing purchases of mortgage-backed securities to bolster market liquidity, so
that new mortgages remain available and affordable. Treasury and FHFA are
counting on us to do this, and we will.
• Working closely with our loan servicers to come up with new and better
foreclosure prevention solutions to keep people in their homes. We have begun a
comprehensive effort to reduce the flow of delinquent loans being referred to
foreclosure.
• Evaluating how we can participate in the FHA Hope for Homeowners program to
reduce principal loan balances, once the rules of the program are finalized. A
good number of Fannie Mae borrowers may benefit from this program.
• As Director Lockhart has said, we are in discussions with IndyMac and the FDIC
to evaluate how we can best integrate the FDIC-announced streamlined loan
modification program into our own loss-mitigation efforts related to those loans
IndyMac services.
• Developing new plans to perform on our obligation to serve low-income and
underserved borrowers and renters. Our binding affordable housing goals are
ambitious, and in this market may be unattainable. But we will not shirk
responsibility to do all we can to achieve them.
• Finally, we are working closely with FHFA and Treasury to find ways Fannie
Mae can assist in government efforts, including the mortgage asset liquidity fund
proposed by Secretary Paulson, to deal with mortgage asset quality in a broader
way by modifying mortgages, preventing foreclosures, and keeping more people
in their homes.

Actions by the Treasury and Federal Reserve
Last week’s actions by the Federal Reserve and the Treasury to support our discount
notes and to purchase our mortgage-backed securities should help improve the liquidity
of the mortgage market and ensure access to affordable new mortgages.
Together with FHFA’s directive to increase purchases of mortgage-backed securities,
these actions are primarily designed to keep mortgage rates as low as possible. Treasury’s
proposal for a government liquidity vehicle for illiquid mortgage-related securities should
help in this regard, so that the troubles of the non-agency market can begin to be
addressed and the global flow of capital and credit, upon which the secondary mortgage
market depends, can continue.
While these actions have helped, the credit markets remain unsettled. Treasury has said
that our senior and subordinated debt holders, as well as holders of our MBS, are
protected without regard to when those securities were issued or guaranteed. We are
working with the investment community to better their understanding of the long-term
soundness of our debt securities, and the binding legal obligation to support those
securities provided by the Treasury Department.

Moving Forward
Lastly, with the close supervision of FHFA, we are undertaking a full re-examination of
the company’s risk posture and controls, both in the context of safety and soundness and
in the context of providing maximum liquidity support for affordable mortgage lending
during this extraordinary period.

We are reviewing all of our mortgage guaranty pricing and underwriting standards. Now
that our capital base is secure, we can reevaluate our pricing for credit risk. This means
we will reexamine the pricing of our guaranty fee in light of current conditions and the
needs of the market today. Done correctly, this should have long-term benefits for the
mortgage market and Fannie Mae.

I have initiated a full review of our operations, technology, governance and management
structure to align the company with the new reality of the marketplace and the goals of
the conservatorship. We are going to examine all of our operating costs with an eye on
delivering service more effectively and efficiently. Our resources will be targeted on the
fulfillment of our mission, which is:
• To enhance the liquidity of the secondary markets for conventional mortgages;
• To make mortgages and rental housing as affordable as possible for low-andmoderate-
income families;
• To prevent foreclosures; and,
• To safely and responsibly deliver reasonably priced credit for mortgages that are
sustainable over the long haul.

Our goals are to realign Fannie Mae to deliver on this mission, to develop realistic plans
to achieve sustainability, and to eventually remove the need for government assistance.
Thank you again, Mr. Chairman, for this opportunity. You and this committee have
provided valuable leadership on GSE and housing policy, and I look forward to working
with you through this difficult period for our housing markets and our country. I will be
happy to take any questions from the committee.