DealZone

How Fannie and Freddie work

August 6, 2008

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Freddie Mac on Wednesday posted its fourth straight quarterly loss as it braced for a prolonged housing crisis by setting aside twice as much money for bad loans and setting plans to slash its dividend by at least 80 percent.

The worse-than-expected results come just three weeks after U.S. authorities orchestrated a sweeping effort to prop up the second-biggest provider of U.S. residential mortgage funding and its fellow government-sponsored rival, Fannie Mae.

Click the arrows below to understand how Fannie Mae and Freddie Mac work, and how their troubles could influence the economy and potentially cost taxpayers billions.

 

Comments
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I just watched an interview with the CEO of Freedi Mac or of Fanny Mae…I get them confused but this “gentleman” said that though he had been warned in 2004 about empending problems with the loans they were making that he had to “balance” the responsibilities of shareholder concerns and following the charter onder which they operate. The problem, in my view, was and is the charter and the liberal Congress that demanded that everyone be able to buy a house whether they could afford it or not! WE never bought a house where we did not have to show proof of my husbnad’s jobs, W2s etc. etc. And we only got morgages for an amount that we could afford plus REALISTIC living expenses. Going for the max or an adjustable rate on the word of a loan officer is stupid and the people only have themselves to blame. I do also blame states that do not require mortage applicants to have individual legal representation for closing. Just having escrow reps is too limited to represent individual concerns.

Posted by Moo Moo | Report as abusive
 

Back in 1990 when the S&L scandal was still in our minds (Banks went bankrupt then because of Real Estate..)
The only mortgage programs available were Federally backed by FHA and VA (changing mortgage insurance premiums to cover potential losses) and conventional programs (majority backed by Fannie Mae and Freddie Mac) with a required downpayment and a mountain of requirements.
Mortgages had to make sense. As time passed and the Republican congress of the late 90′s deregulated the mortgage backed securities markets, avalanches of new rogue mortgage programs flodded small and mid-sized mortgage companies, and the results were thousands of mortgages that did not make sense, waiting to default.
Add to this the fact that the economy has faultered since 2001 and you have a bad recepie of Millions of people living off their credit and the equity of their homes for almost all this decade.
It is not only a mortgage markets problem, is it the decimation of our economy and our way of living.

Posted by Athena | Report as abusive
 

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