Dear [Negocios Loucos]:
Thank you very much for writing to me about the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
As you know, Fannie Mae and Freddie Mac are government sponsored enterprises (GSEs) that were created to facilitate homeownership by buying mortgages from banks. Founded in 1938 and 1968 respectively, Fannie Mae and Freddie Mac have come to play a central role in the housing market and now hold or guarantee mortgages valued at more than $5 trillion -- about half the home loans in the United States .
The GSEs' charters limit them to buying single-family and multifamily home mortgages originated by other companies. This makes them more exposed to problems in the housing and mortgage markets than other financial institutions. Because of falling home values and rising foreclosure rates, the value of the GSEs' loan holdings has decreased drastically. Fears that Fannie Mae and Freddie Mac might not be able to cover these losses have caused stock market share prices of both companies to plummet, furthering concerns about their ability to remain solvent.
Although Fannie and Freddie are both stockholder-owned corporations and are not explicitly backed or funded by the U.S. government, there has always been a widely held belief that the federal government would step in if either company were threatened with failure.
Congress recently passed the Housing and Economic Recovery Act, which was signed into law on July 30, 2008 as P.L. 110-289. To stabilize the housing finance market, and make sure that affordable home loans continue to be available, the new law grants temporary emergency authority to the Treasury Department to purchase debt securities or stock issued by both Fannie Mae and Freddie Mac. This authority is the best way to boost market confidence in the GSEs and reduce the likelihood that the government will need to lend a hand. Fannie Mae and Freddie Mac have not tapped the assistance offered separately by the Federal Reserve, and regulators have stated that the companies have enough capital to continue their operations.
In addition, the legislation creates an independent regulator with increased authority to set strong capital standards so markets can count on the safety and soundness of Fannie Mae and Freddie Mac and so that they can continue to provide our nation's families with affordable mortgages.
The future of Fannie Mae and Freddie Mac is vital to the banks, savings and loans, and credit unions that own $1.3 trillion of securities issued or guaranteed by the two mortgage companies. The two GSEs are equally important to the foreign investors who own an additional $1.3 trillion in securities. Given the importance of Fannie Mae and Freddie Mac, to both U.S. and foreign concerns, the failure of either company could have far-ranging consequences for the strength of the U.S. economy, faith in American markets, and the value of the dollar.
Again, thank you for writing to me. Please do not hesitate to contact me in the future on this or other issues that concern you.
United States Senator