Crashing Foreclosure Rates Responsible For Collapse Of Fannie-Freddie

July 28th, 2008

The crashing foreclosure rate throughout the nation is being held responsible for the collapse of the two indispensable housing-mortgage companies of the country Fannie Mae and Freddie Mac. The government policy makers had issued a warning beforehand in anticipation of the impending catastrophe. The investors are overawed at the outcome of these major lending companies as they are the architects who have given the American housing market its present stand.

The New York Times have revealed that the Federal Government had embarked on a plan to take over the two private mortgage agencies, Fannie Mae and Freddie Mac which were immersed in billion dollar losses due to defaults in home loan payments by borrowers and the debacle of the foreclosure market that followed at its heels. Such a step would jeopardize the position of the shareholders and the government in the process may have to bear additional losses in billions, the Daily opined. It is expected that the nation’s worst-hit housing crisis will now take a new turn.

The mere speculation that the mortgage giants Fannie and Freddie were heading for a crash sent ripples down the spine of Wall Street, so much so ,that all the government officials including the President had to render a public assurance that there was no such danger forthcoming and neither would such an incident in the country be tolerated.

The fact that the downward trend of foreclosure rates and the sub-prime fiasco has landed the companies in a catastrophe is proved by the way their business was conducted. They bought high-quality mortgage property and repackaged them for sale to investors with guaranteed payment and lowered rates of interest. Together these agencies owned or guaranteed around $5.2 trillion in mortgages, almost a half of the $12 trillion outstanding in the country. It is obvious that Fannie-Freddie play a key role in the world’s most engaging mortgage market and irreversibly in the US economy as a whole. When stocks are down by 45% for a week and share prices tumble it is unusual to remain unconcerned and Wall Street fears were allayed only when Washington spoke up.

Henry Paulson, Secretary of the US Treasury, had announced in a statement, that the government was standing by Fannie Mae and Freddie Mac ,when they are stranded in deep waters and also propose to lend out from the central bank coffers two emergency funds to bail them out of their present crises.