It’s done: The U.S. Treasury has seized control of Fannie Mae and Freddie Mac through a conservatorship. Federal Housing Finance Agency director James B. Lockhart is the conservator. The debt is guaranteed, the two government-sponsored enterprises will keep buying mortgages, and their share prices now reside in the land of penny stocks. Herb Allison replaced Daniel Mudd as CEO of Fannie; David Moffett replaces Richard Syron as CEO of Freddie. The ex-CEOs will hang around for while, and initial reports suggest they will take away millions when they finally leave the premises—if investors and taxpayers will stand for it.

What happened to the first plan, the one announced back in July? Morgan Stanley, perhaps. That company was brought in by Treasury to go over the GSEs’ books, and reportedly found that Freddie’s cushion wasn’t quite as thick as stated because of legal but very liberal accounting methods.

In his statement announcing the new regime, Treasury Secretary Henry Paulson said he “concluded that it would not have been in the best interests of the taxpayers to for Treasury to simply make an equity investment these enterprises in their current form.” What’s the price? “In the end, the ultimate cost to the taxpayer will depend on the business results of the GSEs going forward,” Paulson helpfully added. Back in July, when officials suggested the possibility of conservatorship was remote, the Congressional Budget Office put the cost to taxpayers of the original plan somewhere between $25 billion and more than $100 billion, depending on barometric pressure. No doubt the CBO will be asked for another estimate now.

The cost to banks and thrifts is being assessed by staffers at the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. In a chilly joint statement they tried to calm the markets: “The agencies believe that, whole many institutions hold common or preferred shares of these two [GSEs], a limited number of smaller institutions have holdings that are significant compared their capital.”

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.