The Rescue of Fannie Mae and Freddie Mac – Module E: The Housing and Economic Recovery Act of 2008

As the U.S. housing crisis worsened in 2007, and through 2008, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) headed towards insolvency. At the same time, contractions in private securitization resulted in these two government-sponsored enterprises (GSEs) purchasing nearly half of all new mortgages. In July, the government passed the Housing and Economic Recovery Act of 2008 (HERA) to provide a more effective regulator and to address public uncertainty regarding whether the government would back the GSEs’ assets and liabilities. HERA provided Treasury and the newly formed Federal Housing Finance Agency (FHFA) with the framework needed to stabilize the distressed firms, which by then collectively held or guaranteed over $5 trillion in mortgages and mortgage-related securities. On September 6, the FHFA placed the GSEs into conservatorships and Treasury took steps to ensure their solvency. The steps taken by the government pursuant to HERA avoided the collapse of the GSEs and the concomitant collapse of the U.S. housing market, but did not address the longer-term issues inherent in the GSEs’ structure, which remain unresolved as the firms remain in conservatorship