TIMELINE: Events leading to the Fannie, Freddie rescue
(Reuters) - Rarely have opposing political forces in Washington been so quick to come to agreement on a response to a crisis as they have in the past 10 days to prop up Fannie Mae and Freddie Mac.
The U.S. House of Representatives on Wednesday sent on to the Senate for final approval legislation that provides vital backstops for the two mortgage finance companies, a little over two weeks after a panic erupted on Wall Street over whether they might fail.
Below is a recap of the events leading to Wednesday's vote in the House.
Monday, July 7
A Lehman Brothers research report suggests proposed accounting rule changes might leave Fannie Mae and Freddie Mac grossly undercapitalized. While seeing such an outcome as unlikely, the report hypothesizes the two might need as much as $75 billion in new capital between them.
Panicked stockholders dump Fannie and Freddie shares, sending them to 16-year lows. Fannie tumbles more than 16 percent, and Freddie loses nearly 18 percent of its value.
Tuesday, July 8
Fannie's and Freddie's regulator, the Office of Federal Housing Enterprise Oversight, says it is misleading to suggest they are undercapitalized and that neither would need such a dramatic capital infusion.
Both stocks rally. Fannie rises more than 11 percent. Freddie gains 13 percent.
Wednesday, July 9
Heavy selling in both stocks resumes on fresh worry about their capital positions. Fannie shares fall 13 percent. Freddie plunges nearly 24 percent.
Thursday, July 10
Investors are further rattled after former St. Louis Federal Reserve Bank President William Poole says in a Bloomberg interview that Fannie and Freddie are insolvent under fair value accounting rules and may need a U.S. government bailout.
Selling in the stocks is furious and spreads into their bonds, long perceived as having the implicit backing of the U.S. government.
Fannie shares end down by almost 14 percent. Freddie plunges 22 percent.
Friday, July 11
Shareholder panic reaches a crescendo even as both companies insist they are adequately capitalized, Freddie shares dropped below $4 at one point and Fannie bottomed out at less than $7. The New York Times reports that Treasury Secretary Henry Paulson is committed to not bailing out shareholders in any government rescue of the companies.
Reuters reports late in the afternoon that the Federal Reserve has offered an assurance of access to Fed money if needed. The stocks rally off their lows. Freddie closes down just 3 percent, but Fannie still drops 20 percent on the session.
After the close of trading, the Federal Deposit Insurance Corp takes over the failed IndyMac bank.
Sunday, July 13
After a whirlwind weekend of negotiations, the U.S. Treasury Department and U.S. Federal Reserve announce emergency measures designed to provide vital backstops for Fannie and Freddie. The measures include access to credit lines, including direct access to Fed money if necessary, and a provision for the Treasury to take an equity stake in the companies if required. The Securities and Exchange Commission announces measures aimed at stemming the spreading of false rumors.
Monday, July 14
Despite a strong auction of $3 billion of short-term Freddie Mac debt, which reassures fixed-income investors, equity investors remain unclear about whether they would be protected in a bailout.
Fannie shares fall 5 percent. Freddie shares drop 8 percent. More widely, bank shares plunge in the wake of the IndyMac collapse.
Tuesday, July 15
Paulson joins Fed Chairman Ben Bernanke and SEC Chairman Christopher Cox in defending their bailout plan to lawmakers. Cox says the SEC will impose an emergency measure designed to make it more cumbersome to sell short the shares of Fannie Mae, Freddie Mac and 17 other major financial institutions.
Fannie and Freddie shareholders still find no overt assurance regarding the fate of common equity in any government bailout. Freddie shares plunge 26 percent. Fannie plummets 27 percent.
Wednesday, July 16
Equity investors finally sense some relief as the U.S. government gains some key support for the rescue package. Short sellers also begin to back off the stocks ahead of the SEC's emergency short-selling rules taking affect. Wells Fargo, the big California-based bank, reports stronger-than-expected quarterly earnings, igniting a broad bank rally that also lifts Fannie and Freddie shares.
The stocks have their best one-day gains in more than two decades. Both rise about 30 percent on the day.
Thursday, July 17
Investors keep buying the stocks after Freddie's second successful debt sale of the week and growing confidence in the fate of the rescue effort moving through Congress.
Fannie rises more than 18 percent. Freddie adds nearly 22 percent.
Friday, July 18
Freddie Mac files with the SEC to register shares for a possible capital raising at a later date. The financial share rally continues, helping lift both stocks.
Freddie rises 10 percent. Fannie surges almost 23 percent.
Monday, July 21
Freddie has another successful debt sale, though the auction shows evidence of smaller demand than the previous week's sale. The SEC's short-selling restrictions take effect.
Fannie gains more than 5 percent. Freddie falls more than 4 percent.
Tuesday, July 22
Congressional negotiators reach agreement on language for a housing rescue package that includes the Fannie-Freddie support measures, setting the stage for a House of Representatives vote on Wednesday.
Freddie rises almost 11 percent. Fannie slips 5 percent.
Wednesday, July 23
The House approves the rescue bill sending it on to the Senate. The White House drops its opposition to other measures in the broad housing bill, pledging to sign it into law.
Fannie Mae shares rise almost 12 percent to end at $15, their highest closing level since July 9. Freddie gains more than 11 percent to end at $10.80, its highest daily close since July 8.
Both stocks now are more than double their intraday low prices set on July 11.
