Fannie Mae and Freddie Mac Loaded With Bad Debt

Business Week reports on America's fascist movement:

Fannie Mae (FNM ) and Freddie Mac (FRE ) have been cast as saviors in the housing drama that's roiling the financial markets. After they stepped in to snap up billions of dollars in subprime loans earlier this year, some politicos declared the duo a point of strength: "Freddie and Fannie aren't the problem. [They] are the good part," Representative Barney Frank (D-Mass.) said in a recent hearing.


But that doesn't mean they're immune to the pain. Like the big private- sector players, these government- sponsored companies, which own or guarantee 45% of all residential mortgages, have taken on more risk in recent years. Now they hold a sizable piece of subprime and other potentially toxic debt--securities and largely illiquid loans that could take a hit after the recent fire sale prompted by two Bear Stearns hedge funds. And given the state of the broader housing market, more trouble may lie ahead. That would be bad news for shareholders and investors who own their mortgage-backed securities. "We don't know how much trash is on their balance sheet," says Josh Rosner of researcher Graham Fisher & Co. "It seems they've shot themselves in the foot." Fannie declined to comment. Says a Freddie spokeswoman: "We are well positioned to withstand even a severe and enduring period of heightened credit risk."

Driven by market competition and regulatory mandates, the two have become big buyers of adjustable-rate mortgages, or ARMs, and MBSS that include them. Those items accounted for 18% of Freddie's volume in 2006 and 22% for Fannie in 2005, the latest data available. That's up from virtually nothing in 2001.

Fannie Mae sure is getting their money's worth out of Barney Frank.