But Hank Paulson (then the Treasury Secretary), James Lockhart (then the head of a new federal agency called the Federal Housing Finance Administration), Ben Bernanke (still the chairman of the Federal Reserve), had decided that both companies needed to be placed into a strange status called "conservatorship" for the sake of financial stability and the support of the housing market. (Read also: Investors Sue Government Over Fannie, Freddie ) A few months earlier in July, Congress had passed the Housing and Economic Recovery Act, which created the FHFA and authorized the Treasury to organize a rescue of Fannie and Freddie. Under the act, the director of the FHFA could seize the mortgage companies by declaring his agency the conservator or receiver if he found they were in financial distress, under-capitalized, breaking the law or monkeying around with the books. It's clear that under the law that the government could have seized 100 percent of the companies.