WASHINGTON — Treasury Secretary Henry Paulson will take advantage of broad powers over Fannie Mae and Freddie Mac under authority he received in July's housing legislation, House Financial Services Committee Chairman Barney Frank said Saturday.
"Late yesterday I spoke to Secretary Paulson and he informed me that the Treasury Department intends to use the powers that Congress provided it to ensure the continued and stable functioning of Fannie Mae and Freddie Mac," the Massachusetts Democrat said in a press release.
Rep. Frank said he did not know the details of Mr. Paulson's plan but said, "I will evaluate them in three dimensions: protecting the American taxpayers; restoring stability to the financial markets; and ensuring the continued availability of affordable housing."
Indeed, most industry observers were in the dark on details of Mr. Paulson's plan and a Treasury spokeswoman continued to decline to comment on the government's next step. Many sources say they expect the Federal Housing Finance Agency to place Fannie and Freddie into conservatorship and fire the chief executives of each company.
The housing legislation gives the Treasury authority to purchase debt or equity in Fannie and Freddie. Unless they are placed in conservatorship, Fannie and Freddie would have to agree to an equity purchase. The government-sponsored enterprises were reportedly mulling their options on Saturday.
The Treasury also won power to extend an limited line of credit to Fannie and Freddie and it is unclear whether the GSEs have taken advantage of that new source of liquidity.
James Lockhart, the director of the Finance Agency, met yesterday with Mr. Paulson, Federal Reserve Board Chairman Ben Bernanke, Fannie CEO Dan Mudd and Freddie CEO Richard Syron to discuss the government's plans, including conservatorship.