Treasury, FHFA Outline Fannie, Freddie Rescue

The Treasury also has agreed to temporarily purchase GSE mortgage-backed securities MBS. "As the GSEs have grappled with their difficulties, we've seen mortgage rate spreads to Treasuries widen, making mortgages less affordable for homebuyers, said Paulson. "While the GSEs are expected to moderately increase the size of their portfolios over the next 15 months through prudent mortgage purchases, complementary government efforts can aid mortgage affordability." To that end, the Treasury will begin to invest in new GSE MBS later this month.

Paulson said that because the Treasury can hold these securities to maturity, the spreads between Treasury issuances and GSE MBS indicate there's no reason to expect taxpayer losses from this program, and, in fact, it could produce gains. This program will also expire with the Treasury's temporary authorities in December 2009.

Paulson characterized the plan as a "time out" under which policymakers should determine the future role and structure of both firms. "Because the GSEs are Congressionally-chartered, only Congress can address the inherent conflict of attempting to serve both shareholders and a public mission."

Fannie and Freddie, created by Congress in 1938 and 1970 to support the housing market, currently hold $5.4 trillion of the roughly $12 trillion U.S. mortgage market. Over the past four quarters, Fannie and Freddie have posted losses totaling roughly $14 billion, as mortgage foreclosure rates continue to climb in the U.S.

Shares of the two government-sponsored mortgage giants have been volatile in trading over the past few months, as traders reacted to rumors and speculation over whether a government bailout was imminent. While both stocks posted positive closes Friday, they took a severe beating in after-hours trading following The Wall Street Journal's post-market report of the impending bailout this weekend. Fannie Mae shares fell 21.9% to $5.50, and Freddie Mac sank 20.8% to $4.04.

For more details, check out Paulson's full statement as well as Lockhart's prepared remarks at the Treasury and FHFA Web sites.