|Picture Source: http://sightsonpennsylvania.blogspot.com/2010/06/fannie-mae-and-freddie-mac-delist.html|
• First she highlights that in the entire 2,300 page document relating to the recent financial reform bill there is unbelievably little detail of the mortgage giants Fannie Mae & Freddie Mac.
- This demonstrates a woeful lack of understanding around the origins of the financial crisis itself, but more specifically the US mortgage market, of which Fannie Mae and Freddie Mac make up a staggering $5,500bn of outstanding mortgages in US or approximately 50%.
- However these could rise dramatically from this figure with estimates varying from $390bn to a whopping $1trn, which as Gillian Tett puts it makes the “woes of the Spanish savings banks seem almost tame”.
- This is highlighted by the fact that 9/10 mortgages last year were underwritten by Fannie Mae and Freddie Mac
- Additionally if the Obama administration were to embark on a radical reform programme, this would inevitably lead to huge conflict between the government and Federal Reserve given the size of their holdings of mortgage backed bonds.
Given the fact it was the markets that forced austerity on Greece and the Bank Stress Test in Europe, it may again decide the fate of the GSEs and the US mortgage market should the markets repeat the events of May this year.