Why was Fannie Mae in financial trouble?

I have some questions about Fannie Mae that I need to be answered for a school project.





Who is Fannie Mae?


Why are they in trouble?


How did they get into to economic trouble?


What is being done to get them out?


How it effects me as a American?





Look forward to seeing your answers.



Same reason the banks were in trouble. People defaulted on mortgages. They become strapped for cash, so they beg the government for it. They received bailout money from the government.




Fannie Mae is a government sponsered enterprise or GSE. Fannie Mae bought or %26quot;securitized%26quot; mortgage loans from banks. This provides plenty of money or %26quot;liquidity%26quot; to banks to make loans to people to buy houses.





Here is the short answer why they are in trouble and PART of the reason why we are in this financial mess. Mortgage brokers sold loans to people to buy houses they could not afford, Fannie Mae did as they always do and buy that mortgage from the bank. Normally mortgage payments from the homebuyer would keep coming in as they always have. The problem is Fannie Mae did not appreciate the risk that was happening. They did not know that poor risk buyers were being sold overvalued homes they could not afford. It is like you loaning a friend $100, expecting to get $10 a month for 10 months. After a month they quit paying you.. Suddenly you just lost $90 or 90%





They got into trouble because of artificially low interest rates, greedy banks, greedy mortgage brokers, greedy homeowners, and lazy risk assessment agencies (AMBAC, MBIA).





The government is trying to get people to rework their mortgages to stay in their homes and continue to pay their mortgages. The government is also trying to convince private companies to buy the %26quot;toxic assets%26quot; to get them off Fannie Mae%26#039;s balance sheet.





As an American you should think about what the responsbility of the federal government is in all this. What are your tax dollars being used for and are they being used in a constitutional, rational manner? Should the government print money to artificially inflate prices of homes and stocks to appease the masses though they know it is all fake? These are questions to ask those in charge and yourself.




Bad loans. They created a market for bad loans (excuse me, I mean loans to under-qualified mortgage applicants who had been kept down by the traditional system that required good credit ratings and proof of income), which caused banks to write bad loans. Fannie Mae then purchased the loans. Wholesale financial collapse ensued.


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