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The market is under pressure as Fannie Mae and Freddie Mac continue to fall.

 

The shareholders in the countries two largest agency lenders are not the only ones with a rooting interest in hoping the companies can raise additional capital.

Thanks in large part to the recent government legislation every citizen who pays taxes, whether they are a home owner, have a mortgage or have invested in the stock market has a rooting interest in Fannie Mae and Freddie Mac. The semi private mortgage companies that control over 50% of all mortgage loan securities in the country have been reeling from financial losses in the billions as the housing market has fallen apart in the past 12 months.

The success of the two companies is very pivotal to wall street at the companies are now guaranteed to remain in business even if it means the government has to provide operating capital. This move would cripple their share holders and mean that taxpayers could be on the hook for billions of dollars to fix the housing market collapse.

The short term ramifications is that current mortgage rates are under enormous pressure to remain higher than the current bond levels would indicate. The challenge is that there remains a lack of liquidity and desire to purchase mortgage bonds and loan securities. The spread on Fannie Mae and Freddie Mac bonds has grown sharply over the past few weeks, a clear sign that investors are growing more concerned that the two firms are destined to fail in the current marketplace.

Fannie Mae and Freddie Mac are such icons of the mortgage market and U.S. housing market that when bad news relating to these firms continues to hit the market the entire financial sector will remain in a selling frenzy, further straining the credit markets and eroding investors confidence.

8-17-2008 ? LoanNetwork.com

 

 

 

 

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