Freddie Mac and Fannie Mae are the two giants of the US mortgage market. They make it easier for lower and middle income US citizens to borrow money more cheaply to buy houses. They do this by buying mortgages on the secondary market and selling them on with a Freddie Mac or Fannie Mae guarantee; if the borrower doesn’t pay Freddie and Fannie will. In the light of what has been happening in the US mortgage market over the last year you probably imagine this is not a great business at the moment. You would be right.
The companies play a huge role in the US mortgage market with guarantees outstanding on trillions of dollars worth of loans. The latest worry is that new accounting rules may force them to bring off-balance sheet mortgages on to their books forcing them to raise $75bn of additional capital. This is on top of the threat from write downs to reflect the parlous state of the US housing market.
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