Treasury, FHFA Outline Fannie, Freddie Rescue

"Conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses," said Paulson. In a further effort to save capital, the common and preferred stock dividends will be eliminated, but the common and all preferred stocks will continue to remain outstanding. All lobbying activities will be halted.

The Treasury and FHFA have established so-called preferred stock purchase agreements, contractual agreements between the Treasury and the firms to ensure they maintain positive net worths. Paulson said this commitment will eliminate any "mandatory triggering of receivership" and will ensure that Fannie and Freddie have the ability to fulfill their financial obligations.

"It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set. With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers," said Paulson. Common and preferred shareholders bear losses ahead of the new government senior preferred shares. "In the end," said Paulson, "the ultimate cost to the taxpayer will depend on the business results of the GSEs going forward."