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Document Type

Case Study

Abstract

In 2007 and 2008, the collapse of the subprime mortgage market and the deterioration of the housing market more generally precipitated a crisis at the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which together held or guaranteed $5.3 trillion in mortgage assets. Over the course of two years, both entities suffered high losses and saw their liquidity positions deteriorate as the market perceived their rapid decline. On September 6, 2008, the Federal Housing Finance Agency (FHFA), pursuant to the authority of the Housing and Economic Recovery Act (HERA) of 2008, took Fannie Mae and Freddie Mac into conservatorship as part of a four-part rescue plan designed to prevent their insolvencies as well as the concomitant collapse of the US mortgage market. This case study discusses the establishment of the secured Credit Facility, which functioned as a liquidity backstop for both entities. Despite having gone unused, the facility’s existence assured the liquidity of the two entities and coincided with a resurgence in demand for their debt.

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