Time to Say Goodbye to the Old American Mortgage Pie?

July 11, 2008

The news that Treasury Secretary Paulson and Fed Chairman Bernanke are trying to reassure the broader markets that Fannie Mae (FNM) and Freddie Mac (FRE) will not be allowed to fail has not produced the expected calming effect on the markets. Shares of both firms have plunged into single digits and both are down over 89% and 93% respectively from their highs reached in 2007. Who would have thought that FNM and FRE would become disastrous ticker symbols whose survival is now being debated?

The full faith and credit of the US government is being tossed out as a lifeline, if necessary. Whom would such a lifeline rescue? Could this shakeout exceed the cost of the S & L Bailout in the 1990s? What will happen to mortgage products, origination – packaging – servicing business models, and the overall housing market? What firms are best positioned to weather this latest storm and emerge as stronger players?

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