Mortgage Rate News

Mortgage lenders Fannie Mae and Freddie Mac are leading the charge lower on the stock market today. After the stock market saw some good success last week, things are changing a bit. CNN Money reports on one of the reasons that Fannie and Freddie are floundering again:

The financial newsweekly Barron’s quoted an unnamed Bush administration official as saying that government officials don’t expect the two firms to be able to raise needed capital from private sector investors to cover expectations of future losses from rising defaults and foreclosures of the trillions in mortgages they own or guarantee.

This is bad news for shareholders, who could see the same sorts of losses that Bear Stearns shareholders saw when the government facilitated that company’s “rescue” by JP Morgan. The good news, though, is that the government really plans to keep keep the two government sponsored enterprises afloat, so that a complete collapse of the two companies does not cause true chaos in the financial sector.

The news that Fannie Mae and Freddie Mac may soon need that bailout package spooked Wall Street investors, since it appears to be a sign of continued turmoil in the financial sector. However, the fact that the government is standing behind the two largest mortgage lenders in the country is providing a measure of hope, since the companies won’t be allowed to fail and bring what remains of the economy with them.

All that can be done now is to hope that the government’s current policy of supporting the mortgage giants until the economy rebounds will actually work. In the meantime, investors will need to ride out the stock market, determining whether they can stomach another round of retreats by shares.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: mortgage lenders, mortgage loan blog, home mortgage loan, Wall Street,
Fannie Mae, Freddie Mac