Foreclosures Linked To The Mysterious Duo – Freddie And Fannie

Posted on August 4, 2008
Filed Under Foreclosure Homes | Leave a Comment

The cat is out of the bag – foreclosures are primarily linked to the mysterious duo, Freddie and Fannie. The names are homely and seem to refer to the boy and girl living down the street. Why is government fall over backwards to pull them up?

Freddie and Fannie are two engines that pull a complex train of buying, and selling of mortgages and also packaging and bundling them. Millions of house loans contracted by ordinary Americans passed through them to ultimately come back as the ogre of foreclosures.

The federal government in 1938 and 1970 established Fannie Mae and Freddie Mac respectively. Both being public companies today, their stocks are traded in the market. The point to note is that neither Fannie nor Freddie deals directly with the borrowers. They purchase the mortgages from the banks that are holding them. In return the banks are given cash by Fannie and Freddie with which the banks advance more loans to borrowers and incur debts. Having taken over the mortgages, Fannie and Freddie bundled them together and sold them in slices or in whole to various investors as mortgage-backed-securities. The return, like treasury bonds, is very profitable for investors. Neither Fannie nor Freddie has the explicit backing of the feds for many decades but each of the two has line of credit with the federal government up to $2.25 billion. Thus the silent presence of Uncle Sam made them bloat and swell fast into two giant mortgage bodies.

During the housing boom with loans pouring in from sub-prime mortgages more Americans opted to own houses. This caused the portfolios of Fannie Mae and Freddie Mac to increase by over ten times within 12 years from 1991. As a result they hold nearly $5 trillion mortgage debts – calculating to about half of all the outstanding mortgage debts in the country.

The two began to swell on profits and the going was good until the people could no longer make mortgage payments and the foreclosure crisis hit the country with a bang. When the foreclosures began to swallow the big fish and the cushy mortgages the fortunes of Fannie Mae and Freddie Mac tumbled. Foreclosures caused their stocks to tumble by over 80% in the past twelve months. Powerful investing lobbies have a lot at stake to persuade the government to bail them out. They have lost $11 billion in a year. The taxpayer will have to bear $25 billion to keep them afloat.

Search Repo Homes

• Arizona Repo Homes
• California Repo Homes
• Florida Repo Homes
• Georgia Repo Homes
• Michigan Repo Homes
• Ohio Repo Homes
• Texas Repo Homes
• Repo Homes In Other States

Popularity: 5% [?]

Related Tags

Nobody landed on this page from a search engine, yet!

Comments