What will happen to Fannie Mae (FNM) and Freddie Mac (FRE)?
That’s tough to predict, because it depends on the outcome of political and regulatory processes. My best guess is that Fannie Mae and Freddie Mac will re-emerge as more closely-regulated entities. They will use lower leverage and be more restricted in the types of mortgages they can buy. These higher standards will ripple through the mortgage system and have the effect of tightening mortgage lending terms. You can think of this as “the return of the down payment” – one of the most troubling aspects of our current economy is the percentage of homeowners with negative net equity in their homes. Declines in housing prices are bad enough, as this triggers a negative wealth effect worldwide. But it’s another matter entirely when homeowners have negative equity in their homes, as this works in conjunction with restrictive credit markets to bring real estate transactions to a screeching halt. Congress approved a $700 million bailout. Will taxpayers get their money back? Was the bailout neede
