Fannie Mae and Freddie Mac Failure is Looming, Takeover Imminent

Written by Nickel - 4 Comments

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According to recent reports, mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) are on the cusp of failure, and may be taken over by the federal government as soon as this weekend. The two companies, which together account for nearly half of the nation’s $10+ trillion in mortgage debt, have piled up $14 billion in debt over the past year and are facing additional losses going forward.

The news of the looming takeover broke following a report by the Mortgage Bankers Association that more than 4 million American homeowners were either behind on their payments or in foreclosure at the end of June. That’s a record 9% of all mortgagees.

The takeover, which is expected to cost taxpayers in the neighborhood of $25 billion, was made possible in part by the so-called Housing Rescue Bill, which was signed into law in late July.

Since this news first broke (after the financial markets closed on Friday), shares of both companies have tumbled over 20% in after-hours trading. It’ll be interesting to see how the markets react when they re-open on Monday.

Source: Business Week

Published on September 6th, 2008 - 4 Comments
Filed under: Economy, Mortgages, Real Estate
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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Comments (scroll down to add your own):

  1. I have questions! Will the government be able to do what the private companys did? Will the goverrnment be able to make a profit after the crunch is over? I am against the government taking over any business period. Let the chips fall where they may.

    Comment by "Mo" Money — Sep 7th 2008 @ 10:51 am

  2. Socialized home ownership … what’s next?

    Comment by Early Retirement Extreme — Sep 7th 2008 @ 1:27 pm

  3. Ouch…glad I don’t own any of their stock.

    Comment by Zombie Money — Sep 7th 2008 @ 6:00 pm

  4. This is going to be a shocker to the industry. Currently my source tells me there are 300 banks on the watch list. The goverment is not releasing that list in fear of people doing a run on the banks. However we can say that no bank is safe. My personal advice would be not to have any more than $100k in any bank just to stay FDIC insured.

    Comment by Chris — Sep 7th 2008 @ 7:37 pm

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