Back at the start of the world’s financial turmoil two US entities featured in almost every report.
The Federal Home Loan and Mortgage Corporation (Freddie Mac – FHLMC) and the Federal National Mortgage association (Fannie Mae – FNMA) exist to reduce costs for US mortgage borrowers. The aim is to increase home ownership and these two companies buy ‘conforming’ loans from banks. This allows the banks to use the released funds to keep lending for new mortgages.
But the two companies were hit in the downturn and took massive government aid effectively becoming state owned.
Just last week though Freddie Mac came back to the US tax-payer with its begging bowl, asking for even more money. It wanted another $10.6 billion to bolster its position. Now Fannie Mae has also dusted off its own bowl and is fronting up for another $8.4 billion as it also showed more losses in the first quarter of 2010.
The total given to just these two companies is now about $145 billion with no real end in sight.
There is a lot of pressure for reform of the two companies that have become synonymous with waste and mismanagement as well as the concept of ‘too big to fail’. But there is much on the plate of the US legislature at the moment, which may make their reform one of the smaller, pressing problems to deal with right at this moment.
Both companies are run on a US ‘conservatorship’ basis, roughly a sort of guardianship. That is they are organisations controlled by government but on a more temporary basis than that of full nationalisation. Some Republicans want them to be released from Federal control within two years, but Democrats want to wait.