Fannie and Freddie are Falling Fast
The L.A. Times is on top of the ever-changing conditions at government-backed mortgage giants Freddie Mac and Fannie Mae. The companies’ shares are getting dangerously close to penny-stock territory.
Freddie Mac shares fell $2.91, or 36.4 percent, to $5.09 in late-morning trading, while Fannie Mae fell $3.80, or 28.7 percent, to $9.40. Both are at 17-year lows.
Treasury Secretary Henry Paulson sought for the second-straight day to calm investors panicked about out the financial state of Fannie Mae and Freddie Mac, saying the agency aims to keep the mortgage finance companies “in their current form” without a government takeover.
The financial health of the companies is of critical concern to Washington policymakers because of the crucial role Fannie and Freddie play in the housing market.
The pair hold or guarantee more than $5 trillion worth of mortgages. That’s roughly half of the $9.5 trillion debt of the United States. The fear is that a failure of one or both would wreak havoc on the nation’s financial system and the broader economy.
How are we going to get out of this mess? Is there enough money in the coffers to cover this enormous debt? And if there is, why haven’t we simply paid it off by now?
It’s clear Paulsen doesn’t want people to panic, but this sounds like a major crisis.
Our government refused to regulate lenders. The resulting competition was supposed to be good for consumers, and, for a while, it seemed like it was. But it was all a mirage, all smoke and mirrors. The unregulated mortgage lenders got greedy, the consumers got greedy, and pretty soon our entire financial system was built on a foundation of liar loans, option-ARMS, negative amortization, and poor credit risks.
People say they don’t want government to interfere with their lives, which sounds reasonable in theory. The problem is, there are too many people who can’t be trusted, who can’t control their impulses. So when Mom and Dad had their backs turned, the lenders and the subprime borrowers and the con artists set fire to the house. Now, if the government doesn’t step in, our banking system could collapse.
Recent Redfin posts:
I’m Finally Off the Market — Maybe
Bachelor Pad Sales in Playa Del Rey — $375K and Under
