Fannie Mae and Freddie Mac went into conservatorship last September 2008 as a government move to stall their collapse. Between these two companies rest the fate of 31 million mortgages worth more than $5.3 trillion, many of which are endangered tax foreclosure properties due to the more than $1.6 trillion Alt-A and subprime loans.
They were each given a $100-billion lifeline from the government and they accounted for more than 75 percent of mortgage originations towards the end of last year. Their activities injected the much needed cash-flow required by the financing and lending sectors, which made their importance clear for both homebuyers and lenders.
As indicated by the Federal Housing Finance Agency, the federal entity regulating these two companies, the Obama administration has made it clear that Fannie Mae and Freddie Mac will continue on their key role of stabilizing the housing market. Each will play a vital part in the tax foreclosure properties prevention program planned by the new administration. These plans include:
Fannie Mae and Freddie Mac to create provisions for low-cost refinancing access to borrowers having little or no remaining equities on their homes. This move is expected to help at least 5 million borrowers from losing their homes to foreclosures.
As part of the $75 billion loan modification program, Fannie Mae and Freddie Mac will contribute over $20 billion to help subsidize interest rate reductions for struggling borrowers with tax foreclosure properties.
For these two struggling companies to accomplish their tasks, the administration will pour in at least $200 billion each in support, which is double than previous levels. On top of that, the administration has agreed that the two companies can guarantee or own mortgages up to $900 billion, which is higher than the previous $850 billion.
This added support and funding from the government comes at a very crucial time for the two companies, which are reeling from the impact of soaring defaults and tax foreclosure properties as the economy continues to plummet. Both firms are expected to report huge fourth quarter losses. With these trends, both entities may need more than $200 billion each from the government, but the administration has made it clear that the federal government will be there to back them up.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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