Fannie Mae And Freddie Mac

To many people outside the USA the names Fannie Mae and Freddie Mac sound like characters from a Walt Disney cartoon! Nothing could be further from the truth, or at this present time less funny, because these are the names of the two most important mortgage names in America.

As the share price of Fannie and Freddie plunged on Wall Street yesterday, stock markets throughout the world trembled in sympathy. No wonder, because these two American giants guarantee around $5 trillion of debt. Yes, that's right, not millions, not billions, but trillions of dollars.

It has been suggested that the US Government is planning a bail out, but they are unlikely to be hasty. Although, it seems inconceivable that they would allow these colossuses to go to the wall, they will probably play a game of wait and see, hoping that things will get better.

The ramifications of this latest news, affecting the US property market, are potentially very serious to other countries as well, and particularly to the UK. It seems that the British Governments financial policy has been linked to house price inflation, and encouraging borrowing bordering on the irresponsible.

There are now various schemes afoot to try to minimize problems in housing markets. Public money has either been used, or is being considered for use to plug shortfalls occurring due to imprudent lending.

It is unfortunate that the public at large, are being called upon to provide funds through taxation, to support circumstances resulting from what amounts to bad financial management. In many cases the bad managers responsible have been richly rewarded, and in most instances they remain in charge. Politicians though may be changed through the ballot box!

The Fannie Mae and Freddie Mac problems are symptomatic of what happens when prudent lending gives way to profit free for alls. It only works until the market turns and then, watch out. There are those in high places who have forgotten that property is a market, and not a continuous upward escalator. Now they would tinker with pretending to assist first time buyers with various schemes that are really designed to protect them from further criticism of their own shortcomings.

When the trend of property is downwards the best advice for first time buyers is to wait, and save, until the market has bottomed, which will be widely publicized. That way they will have a higher percentage of funds when measured against less of a total outlay.

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Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac