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The Rescue of Fannie Mae and Freddie Mac - Module D: Treasury's GSE MBS Purchase Program

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As the housing crisis escalated during the second half of 2007, two government-sponsored enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), occupied an increasingly central role in the secondary mortgage market, purchasing a greater percentage of new mortgages as private securitization rapidly contracted. As their importance in this market grew, the two GSEs also began to suffer billion-dollar losses, inciting concerns that they might not be able to stay solvent throughout the remainder of the crisis. On September 6, 2008, fearing the systemic consequences of the two firms' failures, the GSEs' new regulator, the Federal Housing Finance Agency (FHFA), took both entities into indefinite conservatorship as one step of a four-part rescue of the GSEs, which included the US Treasury's establishment of a GSE mortgage-backed securities (MBS) purchase program (GSE MBS Program). This case examines the GSE MBS Program, pursuant to which Treasury purchased $225 billion in GSE MBS in the open market, and finds it difficult to quantify the program's exact impact given the simultaneous implementation of other measures for the GSEs as well as the Federal Reserve's later adoption of its own MBS purchase program.

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  • Wiggins, Rosalind, 2021. "The Rescue of Fannie Mae and Freddie Mac - Module D: Treasury's GSE MBS Purchase Program," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(1), pages 366-386, April.
    • Handle: RePEc:ysm:ypfsfc:311212
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    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1142&context=journal-of-financial-crises
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    1. Johannes Stroebel & John B. Taylor, 2012. "Estimated Impact of the Federal Reserve’s Mortgage-Backed Securities Purchase Program," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 1-42, June.
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    1. Wiggins, Rosalind, 2021. "The Rescue of Fannie Mae and Freddie Mac - Module A: The Conservatorships," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(1), pages 282-318, April.
    2. Thompson, Daniel, 2021. "The Rescue of Fannie Mae and Freddie Mac-Module B: Senior Preferred Stock Purchase Agreements," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(1), pages 319-352, April.

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    More about this item

    Keywords

    GSEs; Fannie Mae; Freddie Mac; FHFA; Treasury; MBS; secondary mortgage market; housing crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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