Fannie Mae and Freddie Mac stand behind most of the United States’ mortgage debt. In recent days their stocks have taken a nosedive. With the housing meltdown, these two entities have become more important to the housing market. This is because the pullback over the last year of banks and others who backed mortgages has forced them to pick up the slack.
Reasons given for the falling value of their stock is fear that they won’t be able to raise enough money from investors to cover growing losses from bank defaults. Freddie Mac’s stock has fallen 50% in the past week. Experts see their troubles as further evidence that the housing downturn may last well into next year.
Fannie Mae and Freddie Mac are privately owned companies whose stock is publicly traded. They were charted by the federal government to buy or guarantee loans and mortgage securities. They are owned and operated by stockholders. They are protected financially by the federal government. This means that taxpayers are on the hook for any losses. Among government support they receive is access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC oversight. They do not lend directly to homebuyers, but buy up loans from lenders then bundle the loans together and sell them to investors.
