GSE Default Means Trouble For Home Buyers

Two giant Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac are teetering on the brink financially. These two entities, chartered by congress to help consumers find home loans at reasonable rates, are struggling with loan defaults. The Federal Home Loan Mortgage Corporation (“FHLMC”), normally referred to as Freddie Mac, and Federal National Mortgage Association (“FNMA”), dubbed Fannie Mae, are responsible for more than a third of the 12 trillion dollars in home loans being paid by American consumers.

Stock values for these two, key lenders, have dropped by 80% from their value just a year ago. There is a serious question about liquidity for these privately held businesses. While there is no guarantee of these organizations by the government, they may be simply to big and too important to be allowed to fail. On the other hand, the financial obligations involved are astronomical; equal to the entire national debt of the United States.

If Fannie Mae and Freddie Mac fail, who will lend money to American home buyers? As a key element of pending plans for prevention of the cascading home loan default crisis, they are essential to a recovery for the housing market.

Related posts:

1. More Home Loans Are In Trouble
2. Fannie Mae, Freddi Mac
3. Fannie Mae Bailout