Shares in U.S. mortgage finance firms Fannie Mae and Freddie Mac plunged on Friday as market speculation mounted that the government was set to take them over to resolve their funding problems.
Investors have been dumping shares and buying the bonds of the government sponsored entities (GSEs) instead in anticipation that a state takeover would effectively give their combined outstanding $1.6 trillion in debt a clear government guarantee.
Fannie Mae and smaller sibling Freddie Mac own or guarantee almost half of all home loans in the United States. They face billions of dollars in losses and may need to raise massive amounts of new capital as the U.S. housing market faces its worst downturn since the Great Depression.
Here are some key facts about the two companies:
- Original name: Federal National Mortgage Association
- Created in 1938 by Congress as part of a campaign aimed at expanding the secondary U.S. mortgage market and increasing home ownership and rental housing.
- Assets: $843.23 billion (March 31, 2008)
- Liabilities: $804.23 billion (March 31, 2008)
- Debt: $544.42 billion (March 31, 2008)
- Annual revenue: $43.71 billion (Dec. 31, 2007)
- Common stock outstanding: 982.32 million (March 31, 2008)
- Chairman: Stephen B. Ashley.
- Shares touched a 52-week high of $70.57 on Aug. 22, 2007.
- Fannie Mae said its retained, or investment, portfolio was $736.9 billion in May, the highest balance since August 2005.
- Original name: Federal Home Loan Mortgage Corp.
- Created in 1970 by Congress as part of a campaign aimed at expanding the secondary U.S. mortgage market and increasing home ownership and rental housing
- Assets: $802.99 billion (March 31, 2008)
- Liabilities: $786.84 billion (March 31, 2008)
- Debt: $469.23 billion (March 31, 2008)
- Annual revenue: $42.91 billion (Dec. 31, 2007)
- Common stock outstanding: 646.27 million (Jan. 31, 2008)
- President: Eugene M. McQuade.
- Chairman: Richard F. Syron.
- Shares touched a 52-week high of $67.20 on Aug. 17, 2007.
- Freddie Mac said its retained, or investment, portfolio was a record $770.4 billion in May.
Combined Share of the Mortgage Market
Including mortgage bonds it guarantees, Fannie Mae's total book of business topped $3 trillion for the first time in May, twice its size at the beginning of 2002. With Freddie Mac's $2.2 trillion in investments and MBS, the GSEs have a hand in nearly half of the entire U.S. mortgage market.
Why Does it Matter that they Remain Solvent?
The GSEs' presence in the struggling housing market is widely considered to be critical. They help keep mortgage rates low for many consumers, but the companies are struggling to balance their growth against rising delinquencies on older loans and guaranteed mortgage bonds.
The stability of the two companies is key to the functioning of the nation's housing market, which is currently suffering the worst downturn since the Great Depression.
Who Oversees the Two Companies?
- The Office of Federal Housing Enterprise Oversight