What Happened to Fannie Mae and Freddie Mac?

Fannie Mae & Freddie Mac Upset

I seem to get the question of what happened to Fannie Mae and Freddie Mac alot these days from people who say they read the news reports, but don’t fully understand what they are reading.  In short, Fannie Mae and Freddie Mac borrow money from the debt markets to buy mortgage loans.  They will either repackage them as securities and sell them to investors or hold the mortgages as their own investment.  Fannie Mae and Freddie Mac guarantee the loans that are sold to investors and because homeowners are not paying their mortgages, FM & FM’s debt is rapidly rising into the multi-millions as each day goes by.  On top of the investors they already owe, their stock has plummeted because panicked investors are dumping the stock in fear they will not be paid back.    The government is stepping in because the decline of these two agencies would mean a possibe total hault in the housing market because banks may cease to provide mortgage loans.  Between the two agencies, they own or back $5 trillion in home mortgages.  The continuation of the agencies is critical in the recovery of today’s housing market.  It is already tough enough to get approved for a loan and with this crisis, it could get even tougher.

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Tags: foreclosures, housing market, mortgage