Freddie and Fannie, what is really going on?

I keep hearing how much trouble mortgage giants Freddie Mac and Fannie Mae are in. They are losing billions of dollars and in danger of the going out of business or worse the government taking them over.

I don’t get it.

When we have a loan go into foreclosure at our bank we are required to buy the loan back from Freddie or Fannie. So they lose very little if one of our loans goes bad. As I understand it this is the agreement most lenders have with them.

So if the lender that makes the loan has to buy the loan back Freddie and Fannie don’t lose a dime.

Let assume that 50% of the lenders have this agreement and the other 50% do not (closer to 100% has to buy the loans back). Freddie and Fannie are protected by the lender buy back and by the mortgage insurance.

How much can they be losing on the homes they foreclose on?

I think there is something else going on. Something they are hiding from the rest of us.

I have heard several theories. One is they want their stock value down to buy back the company. Another theory I heard was that they are hiding monstrous fraud. I don’t know what it is but it does appear that something other than foreclosure losses are causing there financial problems.

What is your theory on the mysterious losses Freddie and Fannie seem to be accumulating?