What's Next for Fannie and Freddie?

(Based on Wellington Management Viewpoints, August 2008)

What's significant about the recent legislation toward Fannie Mae and Freddie Mac?

With $5.2 trillion of guaranteed mortgages, Fannie Mae and Freddie Mac play a huge role in the capital markets. On July 13, the Treasury and Federal Reserve outlined a plan that provides access to the discount window and allows the Treasury to buy these companies' stock. On top of that, the recently signed housing bill includes provisions to ensure the security of these government sponsored enterprises (GSEs).

What is the GSEs' capital structure?

The GSEs' capital structure is fairly straightforward, with the vast majority of mortgage assets financed with unsecured debt. Short-term fixed rate unsecured discount notes are one-third of the capital structure, and long-term senior unsecured notes are two-thirds, and those are the main sources of funding.