Fannie and Freddie?

Question

I don't understand the impact that Fannie and Freddie's troubles have and will have on our economy. Are we talking about mass foreclosures or what? The news media makes it sound like its a terrible crisis. Can anyone explain this for me??

Answer 1

Fannie & Freddie took in trillion dollars worth of loans that were sold to them and they sold it to stockholders. Now since the housing market has collapsed and everybody is foreclosing because they were given loans that they didnt really deserve, Fannie & Freddie are in big trouble! People have foreclosed and aint gna pay them back. Its like you giving 10 of your friends 1000 each and they dont pay you back. You go broke!!!

Answer 2

If Fannie and Freddie go under (which they won't) it will spell disaster for the economy.  They gave out lots of money to help people get homes, and in a lot of cases it was money that wasn't theirs.  They were leveraged around 30:1 (for every $1.00 of their own, they borrowed about $30.00 of other people's money).  With that kind of leverage if the value of their assets drops by just a tiny bit it wipes out all their investment, and that is exactly what happened.  It is kind of a terrible crisis, or at least it could be if the government lets them go bankrupt, but luckily the brilliant minds (yeah right...) in charge of this country have figured out that they can't let Fannie or Freddie go bankrupt.  I'm not sure if that was a good explanation at all but it's a start!