Fannie and Freddie guarantee about $5 trillion in mortgages.

[dkf]

If a house is not foreclosed on and no payments are being received, this comes from the taxpayer. In the end, banks are not necessarily the ones who suffer, it may be federal programs, like affordable housing for the poor. As the safety net gets cut more and more, choices will be have to be made and there will be winners and losers.

"Fannie and Freddie own or guarantee about half of the nation's $10.4 trillion in mortgages. The bulk of their losses stemmed from soured mortgages the firms bought or guaranteed between 2005 and 2008. The companies have sharply tightened underwriting standards, and loans made over the past three years are expected to be profitable."

http://online.wsj.com/article/SB10001424052970203687504577001653467422674.html

[abelenkpe]

1. I'm confused

Banks lent money to people like crazy as the bubble was inflated. So when they lent that money it was essentially created out of thin air by the bank right? With only ten percent needed in reserves or something like that yeah? Private banks created that money by extending credit. Then the banks sold that money to other banks and investors. Then those private banks and investors got into trouble and sold that debt to Fannie or Freddie. And now Fannie and Freddie hold a dangerous amount of debt.
Isn't that debt the promise of being repaid in the future? Why not just wipe it all out since it doesn't really exist and start from scratch? Why are we expecting workers to absorb the loss of risky future promises made by the wealthy and elite? Why do people talk about the agencies that are the only ones still willing to purchase the damaged goods and absolve the sins of wall streets excesses as if they are the bad guys that caused the system to collapse? Seems to me they are more like the last fool willing to buy Wall Streets BS. And that trying to prop up wall street has put Fannie and Freddie in more of a dangerous situation than any original attempt to help the poor and first time buyers into homes.

[dkf]

2. Fannie and Freddie have to repay the investors who bought the bonds.

So money that doesn't get paid back by the homeowner comes out of the pocket of the federal government.

And the investor may be a pension plan or a 401k or an IRA.

The people that really made out were the ones who sold the overpriced houses.