The Housing and Economic Recovery Act of 2008 (HERA) authorized the Secretary of the Treasury to support Fannie Mae, Freddie Mac, or the Federal Home Loan Banks (FHLBs) by purchasing obligations and other securities from those government-sponsored enterprises (collectively, the housing GSEs). HERA gave the Secretary broad authority to determine the conditions and amounts of such purchases.
On September 7, 2008, Treasury Secretary Paulson exercised that authority by initiating individual agreements with Fannie Mae and Freddie Mac (the Enterprises) to purchase senior preferred stock. In addition, the Treasury Secretary established two special facilities to purchase obligations of the housing GSEs: one to purchase GSE-guaranteed mortgage-backed securities (the GSE MBS Purchase Facility) and the other to purchase GSE debt (the GSE Credit Facility). Secretary Paulson has stated those three actions "have essentially guaranteed Fannie Mae and Freddie Mac securities." [1] That guarantee is intended to improve investor confidence in the ability of each housing GSE to continue to provide liquidity to mortgage markets and to meet its obligations. Investor confidence is essential to liquid and well-functioning mortgage markets, which in turn benefit homeowners and qualified mortgage borrowers by lowering borrowing costs and supporting home prices.
On November 25, 2008, the Federal Reserve announced it would purchase $100 billion of debt issued by the housing GSEs and $500 billion of MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Those purchases should further bolster investor confidence in Fannie Mae and Freddie Mac securities.
[1] See http://www.treasury.gov/press-center/press-releases/Pages/hp1301.aspx