Update: Who’s gonna fix Fannie and Freddie?
I wrote recently about the troubles that Fannie Mae and Freddie Mac are facing currently. Increased foreclosures and uncertain finances are dogging these two GSEs. Jonathan R. Laing reported in Barron’s that both companies may well be on their way to becoming extinct, at least in their current forms. To wit,
“Heaven knows, the two government-sponsored enterprises, or GSEs, both need resuscitation. Soaring mortgage delinquencies and foreclosures have led the companies to gush red ink for the past four quarters, and their managements concede the outlook is even grimmer well into next year.”
As if Laing’s statement isn’t harsh enough (sometimes the truth hurts!), he goes on to write,
“What’s more, the fair-value figures reported by the companies may overstate the value of their assets significantly. By some calculations each company is around $50 billion in the hole.”
Yes, you read correctly. Although these folks insure, own, guarantee, etc., trillions of dollars worth of U.S. mortgages, they are, for all intents and purposes, bankrupt and worthless.
What will happen? Even if the Bush administration doesn’t take over, the next administration most assuredly will. That will mean that your taxpayer dollars will be used to ‘recapitalize’ Fannie and Freddie. Although they won’t be added to our country’s deficit, we will still essentially be footing the bill for their indiscretions in purchasing Alt-A (read: subprime) mortgages to increase their market share. Greed and lack of solid management are partly to blame, as are many Americans who got in over their heads with mortgages they couldn’t afford. Speculators/flippers/rehabbers, you name it, they are a serious part of the problem.
