Fannie Mae and Freddie Mac

[wakii]

What exactly is the deal with Fannie Mae and Freddie Mac? How do they make money?

[Canadian]

Fannie Mae and Freddie Mac were created by the US government to help Americans buy their own homes. Fannie Mae was created first in 1938, while Freddie Mac was established in 1970. Both companies are public at the moment. Fannie Mae and Freddie Mac buy mortgages from banks (instead of dealing directly with homeowners). After they buy those mortgages they package them into mortgage-backed securities and sell them to investors.

Fannie and Freddie hold close to $5 trillion in mortgage debt now, and don't have nearly enough capital to protect them against the mounting real estate loan losses, due to the housing slump. Both companies made lost of money during the real estate boom, however now the US government have to bail them out with taxpayers' money.

[trent]

Both Fannie Mae and Freddie Mac stocks have lost over 80% of their value this year. If the government has to bail them out (very likely) than the current shareholders can be wiped out completely. So much for government-propped socialistic ideas.

[invest]

Originally Posted by Canadian

Fannie Mae and Freddie Mac were created by the US government to help Americans buy their own homes. Fannie Mae was created first in 1938, while Freddie Mac was established in 1970. Both companies are public at the moment. Fannie Mae and Freddie Mac buy mortgages from banks (instead of dealing directly with homeowners). After they buy those mortgages they package them into mortgage-backed securities and sell them to investors.

Fannie and Freddie hold close to $5 trillion in mortgage debt now, and don't have nearly enough capital to protect them against the mounting real estate loan losses, due to the housing slump. Both companies made lots of money during the real estate boom, however now the US government have to bail them out with taxpayers' money.

Thanks for the useful info! So the banks don't hold the mortgages, they already sold them. But again people are screwed because they buy stocks in both companies right?