Fannie and Freddie...

With the increasing media attention surrounding Fannie Mae and Freddie Mac, more and more people are asking my thoughts on the future of these mortgage giants. Will they stay publicly traded companies, or be privatized by the government in an effort to hide the losses many economists believe will continue over the next several years?

What's clear is the losses show no end in sight as foreclosure rates rise at a staggering pace. Many of the homes we are seeing in the foreclosure process now, began with loans closed in 2003, originally originated as five year adjustable rate mortgages, now adjusting to their new rates...most much higher than what the borrower was comfortable with. Couple this with real estate depreciation in many areas, and the lack of, or total loss of equity in these homes, many homeowners are electing to walk-away from their homes rather than reduce the principal balance of their mortgages to match the home's value.

As we watch this storyline unfold over the coming months, one thing is clear to me, and that is the government will not let these two critical agencies fail. The reason for this is that they are both critical to the real estate industry as they make billions of dollars in mortgage money available through the secondary market. I tend to believe that if the losses continue to mount and the stock prices suffer further, these agencies will be privatized no only to secure their future, but to hide the losses from the public in an effort to restore consumer confidence and stabilize the troubling real estate market from its current condition.