What do you want to know about Fannie and Freddie?

How sustainable is/ was their business model? In the way old days (pre 1938), a bank made a home loan and had to carry that loan on its books through maturity. Enter Fannie, loanable funds are freed up, fantastic. Fannie operates as an agent of government until the late 1960s with access to the lower interest borrowing rates that come with that status. From the 'privatization' of FanFred until this year, FanFred received a benefit of doubt on its borrowing rates (based on presumed government backing). In the past few years, private firms have gotten into FanFred's business lines - partially pushing FanFred to enter riskier markets to keep making enough money. 2008 happens and the private market disappears, FanFred come under clouds of doubt and their cost of borrowing rises. Did this rate pinch cut their margins and force them into even greater trouble? Can FanFred (and the secondary mortgage market more broadly) operate in normal times without the benefit of the lower borrowing rate?

I would like to know of the takeover of and Fannie and Freddy is a permanent move.

Supposing it is not, I would like to know what changes, if any, the government hopes to put in place to prevent such a bailout from being necessary in the future.

I thought I knew a little about this, but the first commenter was already asking questions that are a little beyond my knowledge.

My question is essentially what liabilities are the taxpayers taking on, and what events caused the necessity? What instruments were FNM/FRE selling that were implicitly government while explicitly stating they were not backed by the government?

thanks

Could Fannie and Freddie have done anything at all (such as better risk management, maintaining a manageable sized and better quality mortgage portfolio, etc.) to prevent their virtual demise? Or was this a catastrophe that they couldn't prevent despite their best efforts? (I think I'm asking the same question as tegwar.)

You had to expect this question from me...

What does the FNM/FRE deal actually address in terms of systemic weakness and what aspects of the economy are still in danger of systemic collapse?

Some articles are suggesting that the take over may actually help home buyers by lowering mortgage rates (CNNMoney suggested by as much as 1% point). How exactly does the this occur? Especially when the same articles then note that fess will stay and that lending will be 'tighter' or more restrictive about the loans that are made. How does this help buyers?

Cosanostra,

TO which articles are you referring? It would be good to know so that we can check out the conclusions and postulates put forth. Thanks.

Bryan -

Here's the CNNMoney article I was talking about - What rescue means for mortgage rates

Next question:

If the FNM/FRE deal was so successful, what is happening to Lehman? Further, who else is at risk still?

To me, this financial kryptonite hardly seems contained and the super powers of the Fed and Treasury seems rather impotent right now.

Could the GSE Reform Bill of 2005 have saved Fannie/Freddie?

http://www.ft.com/cms/s/0/8780c35e-7e91-11dd-b1af-000077b07658.html

The Felix Salmon list (and answers given over at his blog) make me feel a tad in adequate.

Correction:
inadequate.

Some articles are suggesting that the take over may actually help home buyers by lowering mortgage rates (CNNMoney suggested by as much as 1% point). How exactly does the this occur?

Fannie/Freddie make money because they are able to borrow money at lower rates than banks because of their implicit government guarantee. This money is used to purchase loans from the banks. The lower the rate Fannie/Freddie can receive, the lower the rate they can offer banks and the lower the rate banks can offer people. It's usually around 1.5% higher than the rate the government receives (treasury rates), but recently it had gone up to 2.5% due to extra perceived risk. The idea of the take over is that it would reduce the perceived risk (either though an explicit guarantee or a stronger implicit) and drive the spread of Fannie/Freddie down versus treasury rates.

What I would like to know is this -

Some have said that the bailout was due to pressure from foreign bond holders of agency debt. Is there any way to find out if this is true? If it is true and this bailout doesn't work - does that mean that we are one step away from either defaulting on our debt or facing a massive dumping/sell off of Treasuries?

Others have seemed to indicate that this might have been aimed elsewhere. Specifically, some say this was done to unwind F&F CDS deals. Bloomberg reported that the bailout was considered a "triggering" event by CDS market participants. This bailout seems to have allowed all the parties to essentially end the swaps using the par value. People seem to indicate that means these deals unwound at no loss. Is this true? Is there any way to really find out what is going on in this market? Time had ann article a while back about the fragile nature of this market. Now my question is, if there is a melt down in this market, how will we know it started? Is this the event that starts it or was it an attempt to prevent a meltdown? If it prevented a meltdown, does this help make that market more sound or is it just a matter of time before a meltdown occurs?

Also, does this mean that our government now owns a large number of vacant foreclosed homes? What's going to become of them?

Thanks.