Banking Practice Exam

The authorization for the Treasury to purchase debt securities from Fannie Mae and Freddie Mac is rooted in the Treasury Emergency Authority Provisions. This set of provisions was established during the financial crisis of 2008 to allow the Treasury to take necessary actions to stabilize key financial institutions and support the housing market. The provision enabled the Treasury to invest directly in the debt of these government-sponsored enterprises (GSEs), helping to restore confidence in the mortgage market and prevent further economic downturn.

While the Troubled Asset Relief Program (TARP) is widely known for its role in purchasing troubled assets from financial institutions, the specific authority for the Treasury's direct investments in Fannie Mae and Freddie Mac engages the emergency provisions set up during this tumultuous period. Other options, like the Foreclosure Prevention Act or the Check 21 Act, do not pertain to the Treasury's ability to purchase these securities; instead, they were aimed at addressing specific issues associated with foreclosures and check processing, respectively.