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Fannie, Freddie Must Resolve Identity Crisis

Where did all the money go?

Fannie Mae (FNM) lost $2.3 BILLION dollars in the past three months, and its cousin Freddie Mac (FRE) lost nearly $1 billion, bringing its one-year total loss to nearly $5 billion.

Just look around your neighborhood and see the foreclosed and for-sale houses -- all worth a lot less than the mortgage money borrowed to buy them. Add it all up, in neighborhoods across America, and you have all those billions in losses.

Since Fannie and Freddie are the centerpiece of our nation's housing finance industry, the losses -- and reserves for future losses -- congregate on their books. Since they have always had a "line of credit" to the government, recently made more explicit, their problems are our problems, as it looks more likely the two mortgage giants will need an official bailout.

What are Fannie and Freddie?

Just about everyone's heard of Freddie Mac and Fannie Mae -- but very few people understand what a significant role they play in financing home ownership in America. Even fewer understand how conflicted they are in their dual mission of supporting the housing market and acting as profitable businesses.

Actually, very few financial institutions can proudly point to their accomplishment of acting responsibly within their mandate when it comes to the housing loans they made. So many who should have known better opted to avoid looking at the reality of the loans they were making to people who had no down payment, no documented income, and no credit history.
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