What happens if Fannie Mae and Freddie Mac go under?

What would happen if Fannie Mae and Freddie Mac go under? If Fannie and Freddie were to fail, the real estate market would have a big problem on its hands. Cheap mortgage loans would probably dry and thus causing the real estate values to plummet. If you did want to get a home, the interest rate that you would pay would be a lot higher. Fannie Mae and Freddie Mac buy over half of all mortgage loans originated in the United States. If the government would not let Bear Stearns crash I can't see how they could let these two mortgage giants fail.

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What is Fannie Mae

Fannie Mae stands for the Federal National Mortgage Association. It is referred to as Fannie Mae, Fannie, FNMA or Fanny. Fannie Mae provides the secondary market for home mortgages. Fannie Mae has a specific criteria for mortgages that it sells. The loans are then put into mortgage pools and then are sold to Wall Street and other investment entities. Fannie Mae only deals in conforming loans. Currently a loan is conforming if it below a certain amount. For example in Maricopa County Arizona, the conforming loan limit is $417,000. Anything about this amount would be considered a Jumbo Loan and would have a different set of lending criteria.

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