The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae and Freddie Mac, launching what could be its biggest federal bailout ever, in a bid to support the U.S. housing market and ward off more global financial market turbulence.
Their top executives were ousted. Freddie Mac chief executive Richard Syron and Fannie Mae's CEO, Daniel Mudd, were replaced by David Moffett, a former top official at US Bancorp and Herb Allison, formerly with Merrill Lynch and pension fund TIAA-CREF.
In addition, the U.S. Treasury will immediately take a $1 billion equity stake in each company in the form of senior preferred stock and if needed could inject up to $100 billion into each firm.
The government's senior preferreds stock would rank above both existing preferred and common shares and will carry warrants that could give the government an ownership stake of 79.9 percent.
Treasury also set up a program under which it would buy mortgage-backed securities currently held by Fannie Mae and Freddie Mac to pump fresh funds into the mortgage market. It said it would begin buying MBS later this month, and it would have authority to make such purchases through December 31, 2009.
Below is a recap of events since July:
July 13 -- After a weekend of negotiations, the Treasury and the Federal Reserve announce emergency measures to backstop Fannie Mae and Freddie Mac. The two companies will get 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 spread of false rumors.
July 15 --SEC Chairman Christopher 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 Mae and Freddie Mac shareholders still find no overt assurance regarding the fate of common stock in any government bailout. Freddie Mac shares plunge 26 percent and Fannie Mae plummets 27 percent.
July 16-17 -- Equity investors finally sense some relief as the U.S. government gains some key support for the rescue package. Short sellers begin to back off the stocks ahead of the SEC's emergency short-selling rules taking effect.
Freddie Mac completes its second successful debt sale of the week, and confidence rises about the fate of the rescue effort moving through Congress. Fannie Mae shares rise more than 18 percent and Freddie Mac adds nearly 22 percent.
July 21 -- Freddie Mac has another successful debt sale, though there is evidence of smaller demand than the previous week's sale. The SEC's short-selling restrictions take effect.
Fannie Mae gains more than 5 percent. Freddie Mac falls more than 4 percent.
July 23 -- The House of Representatives approves a housing market support package including a mandate for the U.S. Treasury to provide equity or debt to Fannie Mae and Freddie Mac. The White House drops opposition to other measures in the broad housing bill and pledges to sign it into law.
Fannie Mae shares rise almost 12 percent to $15, their highest close since July 9. Freddie closes up more than 11 percent at $10.80, its highest close since July 8.
July 25 -- U.S. Senate approves the housing market bill by a 72-13 vote and it is sent on to the White House to be signed into law.
Aug 6 -- Freddie Mac posts a loss of $821 million, or $1.63 a share, for the second quarter, its fourth straight quarterly loss. Freddie doubles its provisions for losses and sharply cuts its dividend.
Aug 8 -- Fannie Mae posts a second-quarter loss of $2.3 billion before preferred dividend payments, or $2.54 a share. It is the fourth straight quarterly loss, bringing its cumulative loss over the 12 months to $9.44 billion before preferred dividends. Fannie cuts its dividend and says it will raise loss reserves.
Aug 12 -- SEC restrictions on short selling of 19 financial stocks, including Fannie Mae and Freddie Mac, end.
Aug 17 -- Barron's magazine reports the Treasury Department is increasingly likely to recapitalize Fannie Mae and Freddie Mac in coming months, using taxpayer's money.
Aug 18 -- Share prices for the mortgage finance companies drop, with Fannie Mae's price plunging 22 percent to a 16-year low of $6.15 and Freddie Mac's down 25 percent to $4.39.
U.S. Treasury says it has no plans to use its new authority to backstop Fannie and Freddie by providing equity capital or new loans.
Aug 20 -- The U.S. Treasury confirms that officials from the department and Freddie Mac met to talk about the company's health and about how it can best weather current economic woes.
Aug 22 -- Moody's Investors Service cut its rating on FAnnie Mae and Freddie Mac preferred stocks, citing concern that market volatility has hurt the mortgage finance giants' ability to get fresh capital. Moody's lowered the preferred stock ratings on the companies to "Baa3" from "A1," and the bank financial strength rating to "D-plus" from "B-minus".
Moody's affirmed the companies' "Aaa" senior debt ratings, and the "Aa2" rating on their subordinated debt.
Aug 26 -- Freddie Mac said its portfolio of investments in July rose to $798.2 billion from $791.8 billion in June, but its purchase and sales agreements for future months turned around abruptly from the past five months, falling to negative $324 million in the month from $34.7 billion in June.
Fannie Mae said its mortgage investment portfolio grew 14.4 percent in July to $758.1 billion. Fannie Mae's contracts to purchase mortgages in the future rose to $43.3 billion from $38.3 billion.
Serious delinquencies on loans guaranteed by Fannie Mae jumped to 1.36 percent in June from 1.30 percent in May, while the delinquency rate for all Freddie Mac loans rose above 1.0 percent for the first time ever, reaching 1.01 percent of its book of business from 0.93 percentage points in May.
Aug 27 -- Fannie Mae announced a management shake-up in an effort to come to grips with mounting credit losses and a shrinking capital base.
The company's chief financial officer, Stephen Swad, was replaced, and the chief business officer, Peter Niculescu, will take on an expanded role. A new chief risk officer was also named.
Daniel Mudd, the company's chief executive, will remain in place and has the confidence of the board of directors, said board chairman Stephen Ashley.
Sep 3 -- Freddie Mac sold $3 billion of two-year notes to yield 0.975 percentage point more than Treasuries, up from 0.88 point at its July sale of the same maturity.
Sept 5 -- The U.S. government plans to put government sponsored mortgage finance companies Fannie Mae and Freddie Mac under federal control, the New York Times and Washington Post newspapers reported late Friday, in what could be the largest financial bailout in the nation's history.
The Wall Street Journal reported earlier on Sept 5 that the U.S. Treasury Department is close to finalizing a plan to restructure the two companies that includes changes to their senior management.
Sept 7 - The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae and Freddie Mac, launching what could be its biggest federal bailout ever, in a bid to support the U.S. housing market and ward off more global financial market turbulence.
(New York Treasury Desk)