Inside Fannie Mae and Freddie Mac

Former HUD official Howard Glaser gave his take today on all of the news when it comes to Fannie Mae and Freddie Mac.

Glaser states that the immediate Freddie Mac problem is less severe than it looks.  Freddie Mac and Fannie Mae currently hold an estimated 2% of subprime mortgages for Fannie and 4% for Freddie. While they are not completely immune to the broader developments in the housing market, most of their losses have been from the prime mortgage market.

Any losses Freddie has had has an impact on its capital. While these losses have not been really large, with regulations placed on Fannie and Freddie 3 years ago they need all of the capital they can get. The regulation that was placed on Freddie and Fannie 3 years ago was a 30% surcharge in response to the accounting problems they had. So the reason Freddie needs more capital is that regulators are requiring more capital, at Freddie’s normal capital level they would not have to be out there hunting for money. This lack of capital is preventing Freddie and Fannie from pumping additional capital into the mortgage markets when they are in desperate need for it.

To read more about Fannie Mae and Freddie Mac and what they’ve done to housing head on over to CNBC.