Summary
Rising default rates and foreclosures caused the market to question whether Freddie Mac and Fannie Mae had the cash to cover defaults and whether the shrinking margin between outstanding principal and interest and the housing value assets could be covered by Freddie Mac and Fannie Mae's borrowing power.
The prospect of Freddie Mac and Fannie Mae borrowing money to continue buying loans from banks suddenly became very iffy. For one thing, they reasoned, why pump private money into Freddie and Fannie when it was implicitly understood that the government would almost certainly step in with some form of assistance with cash, loans or a combination of both?After some bluster about how secure Freddie Mac and Fannie Mae were, step in the government has indeed done. Treasury's recent actions to offer Freddie Mac and Fannie Mae lines of government credit, to authorize the Treasury to buy FF stock and give the Federal Reserve aboard a say in Freddie Mac and Fannie Mae operating standards reflect a clear sense of imperative to restore investor confidence and keep FF operating.The investment community saw assets held in Freddie Mac and Fannie Macs' mortgage backed securities shrink in value, in some cases becoming worth less that the loans paid out to purchase the homes. Rising default rates and foreclosures caused the market to question whether Freddie Mac and Fannie Mae had the cash to cover defaults and whether the shrinking margin between outstanding principal and interest and the housing value assets could be covered by Freddie Mac and Fannie Mae's borrowing power.See the full content of this document
Extract
Freddie Mac, Fannie Mae in Trouble Again
Freddie Mac and Fannie Mae may sound like ne'er do well relatives who are in trouble again. But their problems have a distinctive meaning for all African Americans, depending on where you are economically and your bet on how political developments will address the boiling economic stew that seems to be boiling out of control.
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