In a statement released on the Fed's website following an announcement of a takeover of GSEs Fannie Mae and Freddie Mac, Fed Chairman Ben Bernanke threw his support behind the Treasury Department's decision, saying the move would help stabilize the financial system.

"I strongly endorse both the decision by FHFA Director Lockhart to place Fannie Mae and Freddie Mac into conservatorship and the actions taken by Treasury Secretary Paulson to ensure the financial soundness of those two companies," said Bernanke. "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets."

"I also welcome the introduction of the Treasury's new purchase facility for mortgage-backed securities, which will provide critical support for mortgage markets in this period of unusual credit-market uncertainty."

Earlier on Sunday, in an effort to support the U.S. housing market at the minimum cost to the taxpayer, the U.S. government announced on Sunday plans to takeover Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac which have come under severe pressure as mortgage delinquencies continue to soar, and house prices collapse.

The plan includes allowing Fannie Mae and Freddie Mac to "modestly" increase their portfolios though to the end of 2009, followed by an annual 10% reduction starting in 2010.

In addition, the Treasury Department agreed to set up Preferred Stock Purchase Agreements, contractual agreements, and a facility allowing the Treasury Department to purchase mortgage backed securities issued by both entities.

Government has also agreed to continue the recent unlimited lending facility to both GSEs as the ultimate liquidity back-stop, and to come to the aid of those enterprises whose holding of Fannie Mae and Freddie Mac assets would reduce their "well capitalized" base.

As a consequence, management of Fannie Mae and Freddie Mac now falls under the jurisdiction of the FHFA, which named Herb Alison, former Vice-Chairman of Merrill Lynch as CEO of Fannie Mae and David Moffett, former Vice Chairman and CFO of US Bankcorp, to head Freddie Mac.

By Erik Kevin Franco and edited by Megan Ainscow
©CEP News Ltd. 2008