Freddie Mac(FRE) and Fannie Mae(FNM) were recently the target of a Standard & Poor analysis report which painted a somewhat grim picture. The report, headed by analyst Victoria Wagner, indicates that FNM and FRE are both facing a possible hit from the mortgage meltdown. The report was recently released as FNM and FRE hid behind the government stating that the report was “just a scenario analysis, not a prediction…Freddie Mac remains a well capitalized company.
If FNM and FRE were to require a government bailout, the numbers would be astronomical. According to S&P, the worst case scenario – $1.1 trillion dollars of taxpayer’s money. That’s in comparison to the 1980’s savings and loan crisis that cost taxpayers somewhere in the ballpark of $250 billion in today’s dollars.
To make matters worse, the federal government is looking at putting their AAA credit rating at risk. This would undoubtedly increase the cost of borrowing as well. It becomes clear that these 2 institutions must remain stable in order for the mortgage industry to function properly.
As home values continue to plummet in the majority of the US, interest rates continue to climb, and the job market suffers one can only hope that a plan is put in place soon to bail out not only FNM and FRE but the rest of the country as well.
