Wall Street Today: Fannie Mae and Freddie Mac
Written by Howard Dicus - hdicus@kgmb9.com
July 11, 2008 07:09 PM

Even people who are pretty akamai about other economic issues sometimes have the impression that Fannie Mae and Freddie Mac federal agencies. They are not.

Fannie Mae's real name, federal national mortgage association, began life as a new deal agency to jump start mortgage lending. It was privatized in 1968 and now trades on the New York stock exchange. It guarantees mortgages for a fee and sets a ceiling for the size of a mortgage it will back. The limit is half again higher in Hawaii, Alaska and Guam than on the mainland.

Freddie Mac's real name, federal national loan mortgage corporation was founded in 1970 to give Fannie Mae some competition. Both buy and bundle mortgage notes, reselling them to investors. Like Fannie Mae, Freddie Mac deals only in conforming loans, which can be half again bigger here than on the mainland.

The subprime default crisis and the resulting collapse of the market for mortgage-based securities has left Fannie and Freddie with trillions in debt. It would double the federal debt to bail them out but economists say defaults would have to rise to 12% of all mortgages before things got that bad. A more affordable cash infusion from the fed would likely come before things got to that point.

This column is geared to a Questions and Answer column, so if you have any questions, please email these questions to chichi@mortgage-hawaii.com .

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