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Economic Research

How to Solve the GSE Crisis: Overview of Long-Term Solutions

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On July 13, Treasury Secretary Henry Paulson announced his action plan with respect to the basically insolvent mortgage giants FannieMae and FreddieMac. The main points are the following:

  • First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. The current credit line is capped at $2.25bn each.
  • Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed
  • The Federal Reserve Bank of[...]

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