...not a soap opera, but starting to read sound like one. Fannie Mae and Freddie Mac were the stars of the mortgage industry during the housing boom. They currently hold or guarantee loans valued at more than $5 trillion dollars, about half of the nation's mortgages.
Fannie is a shortened version of the Federal National Mortgage Association, and Freddie stands for the Federal Home Loan Mortgage Corporation. These two companies buy loans and repackage them as securities. Now that more and more borrowers are in foreclosure, investors are starting to panic, and shares in the two have fallen more than 45% this week.
The federal government is ready to intervene and maintain their functions in the mortgage market, but this would mean extending the line of credit to the two organizations to $300 billion each. Right now, they each have a $2.25 billion credit line, established nearly 40 years ago by Congress...but at that time, Fannie Mae had only $15 billion in outstanding debt. Now Fannie Mae carries $800 billion in debt, and Freddie Mac, about $700 billion.
The failure of either one of these companies could be catastrophic to the worldwide economy. Scary stuff in already scary times.
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