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CUNA Fed takeover of GSE will reassure consumers

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WASHINGTON (9/8/08)—The Credit Union National Association (CUNA) said yesterday the U.S. Government takeover of Fannie Mae and Freddie Mac would help strengthen the U.S. housing market and promote stability in the financial markets--thus reassuring consumers. "We have strongly held that any disruption in the secondary mortgage market would have a significant and lasting negative effect on the housing market, with an especially strong impact on persons of modest means--whom credit unions serve as part of their mission,” said CUNA President/CEO Dan Mica, who noted the association continued to review details of the plan, made public Sunday. Yesterday, the Federal Housing Finance Agency (FHFA) said it seized the government-sponsored enterprises (GSEs) after federal officials determined that Fannie and Freddie did not have sufficient capital to survive the losses they are expected to post in the quarters ahead. Since the beginning of 2007, both companies have lost a combined $10.6 billion. The Boards of both companies consented yesterday to the conservatorship. “Although we continue to review the details of the plan, CUNA agrees with Fed Chairman Ben Bernanke that the necessary steps taken by the Federal Housing Finance Administration, and the Treasury, help to strengthen the U.S. housing market and promote stability in our financial markets--thus reassuring consumers,” said Mica. “Further, from what we have seen, it appears this plan will lower mortgage rates from what they otherwise would have been, and will lessen the impact of the credit crunch on the housing market. How much, remains to be seen," he added. In a statement released yesterday, FHFA Director James B. Lockhart provided these provisions of the conservatorship:
* Monday morning the businesses will open as normal, only with stronger backing for the holders of mortgage-backed securities (MBS), senior debt and subordinated debt: * The Enterprises will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month without capital constraints; * As the conservator, FHFA will assume the power of the Board and management; * The present CEOs will be leaving, but the FHFA asked them to stay on to help with the transition; * Herb Allison will be the new CEO of Fannie Mae and David Moffett the CEO of Freddie Mac. Allison was vice chairman of Merrill Lynch and for the last eight years chairman of TIAA-CREF. Moffett was the vice chairman and CFO of US Bancorp. “Their compensation will be significantly lower than the outgoing CEOs,” said Lockhart: * At this time any other management action will be very limited; * In order to conserve over $2 billion in capital every year, the common stock and preferred stock dividends will be eliminated, but the common and all preferred stocks will continue to remain outstanding. Subordinated debt interest and principal payments will continue to be made; * All political activities--including all lobbying--will be halted immediately. Charitable activities are being reviewed; and * There will be the financing and investing relationship with the U.S. Treasury, which Secretary Paulson will be discussing.