Fallout: The Financial Crisis

Renewed trust in Freddie and Fannie

John Dimsdale Sep 3, 2008
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Fallout: The Financial Crisis

Renewed trust in Freddie and Fannie

John Dimsdale Sep 3, 2008
HTML EMBED:
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TEXT OF STORY

Renita Jablonski: Credit-rating firm Fitch Ratings analyzed a crop of so-called option adjustable-rate mort ages taken out between 2004 and 2007. The conclusion? Most of them will recast to higher payments next year or in 2010, sooner than homeowners thought. Fitch says that’s going to bring another spike in defaults.

Meanwhile, mortgage giant Freddie Mac is expected to announce today a successful sale of $4 billion worth of long-term debt. Fannie Mae plans to auction $2 billion in short-term bonds. Over the past couple weeks, investors seem to have renewed confidence in Fannie and Freddie’s securities. John Dimsdale explains what’s captured investors’ fancy.


John Dimsdale: Fannie and Freddie have lost some $14 billion over the past year as mortgage foreclosures spread. Their crisis convinced Congress to give the Treasury Department authority to prop up the two mortgage giants with taxpayer money, if necessary.

Susan Wachter: Fannie and Freddie and FHA are the game, the only game.

Wharton School professor Susan Wachter says along with the Federal Housing Administration, Fannie and Freddie are virtually the only financers of mortgages this year. And with the government implicitly backing their liabilities, investors feel safe.

Wachter: The entire federal government has come out one way or the other in supporting this debt as quite close to Treasury debt. Thus it’s secure. And it’s been clarified that it has the backing of the federal government.

Wachter says despite investor confidence, Fannie and Freddie won’t be back on solid financial footing until the housing industry turns around.

In Washington, I’m John Dimsdale for Marketplace.

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