Fannie Mae & Freddie Mac: FAQ

"Recent turmoil in the housing and financial markets have caused concern over the future of Fannie Mae and Freddie Mac...." begins a 6-page FAQ issued yesterday by the Congressional Research Service (CRS). Fannie Mae and Freddie Mac are chartered by Congress, their "safety and soundness" regulated by the Office of Federal Housing Enterprise Oversight (OFHEO). CRS states: OFHEO "has repeated assurances that Fannie and Freddie have adequate capital, but as highly leveraged financial intermediaries Fannie Mae and Freddie Mac have limited resources against losses."

Among the FAQs:

• Why are Fannie Mae's and Freddie Mac's stock prices declining so much?
• What risks do Fannie Mae and Freddie Mac face in today's economic environment?
• What risks do Fannie Mae and Freddie Mac create for the U.S. government?
• What risks do Fannie Mae's and Freddie Mac's financial problems create for homeowners and those planning to become homeowners?

Fannie Mae's and Freddie Mac's Financial Problems: Frequently Asked Questions, RS22916 (pdf, 6pp/72kB), July 15, 2008, from Open CRS

See also: The Freddie and Fannie Fallout, New York Times, 7.13.08. The author writes:

By issuing debt, (Fannie and Freddie) guarantee or own more than $5 trillion in home mortgages. Got that? $5 trillion.

Because the federal government established the companies, investors view them as backed, at least implicitly, by taxpayers. And that implied guarantee is what drove Fannie and Freddie’s business models.