July 11th, 2008

Fannie and Freddie in Trouble? Déjà vu for the Fed



We’re keeping our eye on what could be the second government rescue of a major financial player in less than a year; this time it is government-sponsored mortgage buyers Fannie Mae and Freddie Mac. Speculators are concerned whether or not the companies have the ability to raise enough capital to stay in business.

Across the market this week money has flooded out of stocks, and into safer investments like bonds, oil, and gold. (If you’ve noticed the price of oil went from over $137 a barrel yesterday, to over $145 today.) Shares of Fannie and Freddie’s stocks have dropped to their lowest levels since 1991. Investors are in “defense mode,” uncertain of what will happen over the weekend. If the Fed pushes the companies into conservatorship, their stocks could become virtually worthless.

While Fannie and Freddie are not considered to be in “crisis,” negative speculation has already forced them to raise the percentage on their bonds, which will most likely cause a hike in mortgage rates.

Like all other mortgage buyers, Fannie and Freddie have had their fair-share of losses, have struggled with capital, but unlike others who have partially or wholly left the mortgage biz – must keep buying mortgages. With a lot of risk being self directed their way, their recent struggles are only natural.

If there’s any change to the mortgage financers, it’s likely to be merely the terms and conditions under which both companies operate. We’ll keep you updated on the latest developments.

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About the HSH Blog's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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