The mortgage crisis is quickly coming upon a major crossroads – the solubility of the mortgage industries two major players Fannie Mae and Freddie Mac.    Late this week have been many rumors of a bailout from the U.S. Government.   

In a recent Securities and Exchange Commission filing, Fannie noted that it backs $2.6 trillion worth of single-family home loans. Underneath this pile of debt, the company has only $42 billion of capital. If the value of mortgages backing Fannie’s debt falls a few percentage points, the company’s capital could be wiped out. And because of the implicit government guarantee backing Fannie’s debt, American taxpayers would be on the hook for whatever debt Fannie couldn’t cover.

Freddie Mac has a few hundred billion dollars of high-risk loans in its $2.1 trillion book of mortgages. And Freddie’s capital cushion is a meager $40 billion.

Each has reported billions in losses, and they will report billions more as foreclosures accelerate across the country. What happens if their problem loans fall so far in value that their capital is wiped out? There’s only one bank large enough to take over Fannie’s and Freddie’s debts: the U.S. Treasury. Taxpayers.

Their demise would put a quick end to any rebound that the housing market is experiencing.   With out these two companies, the conforming market would disappear and rates would shoot thru the roof.

This is a critical story to follow as our industy (and our jobs – yikes) might rest on the outcome! (more)

Tags: Mortgage Crisis