What’s Happening with Fannie Mae and Freddie Mac

Posted on July 24, 2008 at 4:32 pm
Filed Under Financial Markets, Financial Planning, Mortgage Planning

The U.S. credit crisis is well under way, and two of the biggest names in asset backed securities are Fannie Mae and Freddie Mac.

When these two institutions make the news because of their risk of insolvency, there is no question that they spark some interest and in turn, some fears. In fact, these two company’s are now being referred to as the “epicenter” of the U.S. financial crisis, and dominate the market for U.S. housing finance. Consider them a much larger company similar to that of CMHC and GE. If they did not exist, housing prices would continue to fall at a much larger rate then we’ve seen even to date.

What most are not aware of however, is the fact that Mae and Mac are no longer simply a ”too big to fail” American financial institution. Over the years, these two institutions have become central to what has turned U.S. mortgages into securities held by the world’s central banks. In fact, statistics show that these central bank’s hold up to $925 billion in these types of securities around the world.

Your Take-Away: It is impossible to predict the future of our economy considering the recent volatility we have all seen over the past 12 months. What we can say however is that although both of these institutions are definitely in a financial crisis, the fact remains that we are confident that the U.S. Goverment will be forced to inevitably step in and provide a possible solution for what has and is happening. If they don’t, they would be solely responsible for a further global economy slow down to the tune of multi billions of dollars.

Again, there is no way of predicting with absolute certainty that Fannie Mae and Freddie Mac will eventually get themselves out of their current financial situation. If they don’t however, we will be dealing with a possible global catastrophe that no one in the world would want to see. Better yet, the last country that would want to allow that to happen would be the U.S. based on the fact that they would be the primary reason for a further decline in global economies.

Until next time, have a Terrific Thursday!

P.S. For a far more in depth read of this story and the details involved, please visit http://blogs.cfr.org/setser/2008/07/12/too-chinese-and-russian-to-fail/

Chris & Elisseos

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