A Tragic Death Shocks Again Foreclosure-hit Freddie Mac
A tragic death shocks again foreclosure-hit Freddie Mac. David Kellermann the acting chief financial officer of Freddie Mac died suddenly and tragically. It was apparently a case of suicide. Freddie Mac has gone into a state of shock.
Fannie Mae and Freddie Mac are two mortgage giants that have recently been taken over by the government when the foreclosure crisis brought it to the brink of collapse. Together they hold nearly half of all the mortgages in the country. Fannie and Freddie have been financing 70% of the new home loans. The Obama team relies on these two as the cornerstone to their plans regarding solving the housing crisis.
The home ownership promoting attitudes taken by Fannie and Freddie have been held largely responsible for the housing bubble. In reality the two held a small proportion of the sub-prime mortgages otherwise known as risky or toxic loans.
Fannie Mae and Freddie Mac have suffered great losses. For 2008 Freddie reported a loss of $50 billion. Half of these losses were registered during the last quarter of 2008. Freddie Mac explained that these losses were due to increasing defaults in mortgages and declining value of derivatives. The latter were supposed to protect the loans from changes in interest rates.
The cause for concern is that the better loans that Freddie and Fannie hold are now just showing signs of terminal illness. In February 2009, 2.13% of single-family-mortgages fell into default. This was a spike of 1.98% from January this year and 0.74% rise from the previous year.
The economy is sliding from bad to worse with unemployment dominating the scene. Now the loans are facing a different kind of trouble – not connected with interest resets. The people without jobs do not have the funds to carry on with any kind of mortgage. Research carried on by CreditSights apprehends that the delinquency rate might touch 4% in the forthcoming years.
The Obama team is treating Fannie Mae and Freddie Mac as part of the feds and is expected to act as an arm of the Treasury. Technically they continue to be publicly traded companies working for profit. But they have toed the government line starting with moratorium on foreclosures and agreeing to buy and guarantee home loans that are worth more than the value of the collateral – the mortgaged home.
It has been a strain on many officials to fall in with the political line and also to stand up to the barrage of criticism levelled against them from all quarters.
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