Fannie and Freddie – The Losses Pile On

Fannie and Freddie will become more risk-averse and fears are rising that mortgage rates will keep climbing, making it harder for people to afford a mortgage or refinance their homes, which will spur even more foreclosures.

 

Investors continue to worry that Fannie and Freddie will be overwhelmed by losses and that government aid will be required. Fannie Mae and Freddie Mac are the biggest buyers of U.S. home loans from banks and other lenders. Together they own or guarantee nearly half of outstanding U.S. mortgage debt.

 

The possibility of a US government takeover of Fannie and Freddie became more likely last week as the Frick and Frack of the mortgage market may not have enough capital to make it through next year.

 

Fannie yesterday said late last week that it would open offices in Florida and California, because it had taken over so many foreclosed homes in these areas.

 

The US Treasury has said it would do whatever it takes to ensure that Fannie and Freddie do not fail, including injecting taxpayers' money in return for new shares, which could give the federal government de facto nationalization of the companies.