Today I heard a commentator compare Fannie Mae and Freddie Mac to  distant cousins you vaguely know but don’t hear much about until they show up at a wedding and get totally drunk and trash the place, so why should we care about Freddie and Fannie?
Fannie and Freddie are the two largest mortgage finance companies in the US, and hold about  half of the $12 trillion US mortgage market. They buy mortgages from lenders and then sell them to investors as “packages, the banks sell these loans to get more money to make more loans.
Huge losses have resulted in  worries  of insolvency and  stock in both companies lost half their value in volatile  trading.  Both lenders have stated that their capital positions are adequate, but that is what Bear Stearns, and Indy Mac said right before they imploded, so naturally the market is a little skittish.
 Failure of either or both lenders could reach far beyond the US financial sector. Many mutual funds, and a number of central banks around the world hold some of this debt, and further undermining in confidence could put additional strain on liquidity in the entire global  economic system.
Everyone hopes the emergency credit won’t be needed and that its existence alone will help regain confidence to the point where Freddie and Fannie could continue functioning on their own.

This Week’s Real Estate Insight

Chrysler Corp. borrowed $1.2 billion from the government in the late 70’s, and  The  1980’s savings and loan bailout cost taxpayers $124 billion. Considering the possible continued fallout, Freddie and Fannie are worth saving.