James Lockhart

Original text at 10:00:  

 "The most important facilities are the $100 billion each Senior Preferred Agreements, which ensure that the Enterprises have a positive net worth. This facility is well over three times the statutory minimum capital requirements and lasts until all liabilities are repaid or it is exhausted. Effectively, it is a government guarantee of their debt and MBS. Under this facility, they can grow their portfolios by about $100 billion each, which will further support the market. "

'Media Advirsory:  Clarification to Testimony'  from an FHFA spokesperson at 16:50:  

To clarify the last paragraph of page 3 of Director Lockhart’s testimony, the testimony should read:  “The conservatorship and the access to credit from the U.S. Treasury provide an effective guarantee to existing and future debt holders of Fannie Mae and Freddie Mac as there is an explicit commitment by the U.S. Treasury to provide up to $100 billion in senior preferred stock for each Enterprise.”

When I talked to you in December, I explained that HERA gave the Treasury Department authority to support Freddie and Fannie. (SLIDE 7) Treasury’s Senior Preferred Stock facility, originally $100 billion each but now set at up to $200 billion each, as part of the President’s Homeowner Affordability Plan, provides an effective guarantee of the Enterprises’ debt and mortgage-backed securities by ensuring the Enterprises have a positive net worth. This facility protects not only present senior and subordinated debt holders and MBS holders but also any future debt and MBS holders, with no expiration date.

Inflation is appropriately a focal point because its firming will reduce concerns that the economy is somehow stalling, that prophesies of long-term stagnation have any basis, and that chances of accomplishing the FOMC's policy goals are receding.

As of today, I remain comfortable with the assumption that circumstances will come together around mid-year, or a little later, that will deliver sufficient confidence to begin normalization with the liftoff decision. I won't be more definitive than that. I think all possibilities from June on should remain open. I don't at this juncture have a prediction or preference. Timing will depend on what the data tell us.