The main focus of Treasury Secretary Paulson's speech to the Economic Club of Washington was what to do with Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). He suggested three possible scenarios for the two troubled companies. First, it should be noted that Feddie and Fannie were taken over by the government under a legal process called conservatorship and that together both companies guarantee nearly half of residential mortgages outstanding.
The Secretary said that both companies have a dual role to serve the public interest and to provide a rate of return to shareholders. To satisfy both of these ends he suggested that one or two new companies could be set up that would guarantee a set return to shareholders but would function differently than they do at present. The companies could purchase and bundle mortgages with a federal guarantee but would not hold a large number of mortgages.
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