Fannie and Freddie's Oversized Market Share

CNN Money reports on Fannie and Freddie:

Take a decision Fannie announced Friday. The company said it would reduce down-payment requirements in housing markets where prices are falling. The decision means Fannie is dropping standards it imposed just six months ago, when it understandably was trying to weed out borrowers who might quickly find their houses worth less than their mortgages as prices fall.

The about-face shows the tension between Fannie's shareholders and the firm's expanding role in ameliorating the housing bust. Investors don't like the easier down-payment standards because they increase the likelihood the company will end up on the hook for mortgages gone bad. But any action that makes mortgages easier to come by - and therefore supports house prices - is a winner in Washington nowadays.

And when it comes to making the mortgage market work, Fannie and Freddie are practically the only game in town. Private investors have fled the market for mortgage-backed securities, leaving the companies with an 80% share of recent mortgage originations, through their own portfolios and their mortgage-guarantee businesses. That's double their share five years ago, Freddie Mac said this week on its earnings call.

Critics cringe at the concentration of credit risk implied by Fannie and Freddie's expanding business. Len Blum at investment bank Westwood Capital in New York notes in a recent report that the companies have borrowed almost $20 for every dollar of equity shareholders have. If house prices fall sharply and defaults spike, shareholders could find themselves wiped out, he says.

You really have to have Congressmen on the pad like Barney Frank(Democrat-Fannie Mae) to pull this off.If Wal-Mart had this kind of market share, we would be hearing about anti-trust violations and monopoly.But,Fannie and Freddie have so many politicians in their pockets that they can have a balance sheet that would make Enron blush.Remember,if they fail, taxpayers will be expected to bailout Fannie and Freddie.This really is sickening.