Fannie / Freddie / Fed-up?

The Federal National Mortgage Corporation (Fannie Mae) and the Federal Home loan Corporation (Freddie Mac) are the two largest mortgage loan securitizers in the world. That is, these two companies buy loans and then sell mortgage backed securities to investors. They have developed the most stringent requirements for loans, and therefor have offered investors the most secure investments. There is trouble in paradise, though. It seems that to be competitive in the gogo years of 2003 through 2005 these companies relaxed their requirements too much and now they are having problems, too.

Approximately half the residential mortgage loans in America pass through the Fannie Mae / Freddie Mac machine. They currently have a number of non performing loans on the books, these are some of the foreclosures you hear about on the news.
As a percentage of the total dollar amount of loans serviced, it seems small, but the problem is it is alot bigger than it should be, hence the liquidity issue.

I know, you are thinking some corporation has made some poor decisions, but how does it affect me?

Here is the bottom line; When the most reliable and stable of the bunch is having real problems, how can the industry get back the confidence with its investors? If it can't get this confidence back, the only way to attract investors is to offer more for their money. Yes, this uncertainty in the market is going to be a contributing factor to the rise in rates.

Let's just hope that Mr. Bernanke's ideas work.

In the mean time, rates have bumped up a bit, but in the 24 years I have been doing this job, we are still less than the median rate for this time period, and people were buying houses, refinancing houses and living at even higher rates.

Concerned? Yes. But worried? Never bet against the US economy.