The 2008 Federal Intervention to Stabilize Fannie Mae and Freddie Mac

W. Scott Frame
Working Paper 2009-13
April 2009

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Fannie Mae and Freddie Mac are government-sponsored enterprises that play a central role in U.S. residential mortgage markets. In recent years, policymakers became increasingly concerned about the size and risk-taking incentives of these two institutions. In September 2008, the federal government intervened to stabilize Fannie Mae and Freddie Mac in an effort to ensure the reliability of residential mortgage finance in the wake of the subprime mortgage crisis. This paper describes the sources of financial distress at Fannie Mae and Freddie Mac, outlines the measures taken by the federal government, and presents some evidence about the effectiveness of these actions. Looking ahead, policymakers will need to consider the future of Fannie Mae and Freddie Mac as well as the appropriate scope of public sector activities in primary and secondary mortgage markets.

JEL classification: G21, G28

Key words: government-sponsored enterprises, mortgages, securitization, conservatorship

The author thanks Michael Hammill for research assistance and Mark Flannery, Diana Hancock, Wayne Passmore, Mario Ugoletti, Larry Wall, and Larry White for providing helpful comments on an earlier draft. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to W. Scott Frame, Financial Economist and Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309, 404-498-8783,

For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.