Freddie Mac and Fannie Mae:

FRE Freddie Mac and Fannie Mae: Markets questioning whether it makes sense to keep pouring funds into these two entities - Ladenburg Thalmann (3.21 -0.04)

Ladenburg Thalmann says that FNM and FRE are faced with a constant need to refinance their existing debt. Additionally, both cos have a mandate to keep increasing the size of this debt to aid the housing industry. The amounts of money that are in question are almost as large as the debt of the U.S. government. The two firms have approx $1.5 trn in direct debt; guarantees on what could be as large as $5 trn; and possibly off-balance sheet obligations that could reach $3 trl. The markets are now questioning whether it makes sense to keep pouring funds into the two entities for a number of reasons. Firm says it is almost bizarre that these two cos with their records of mismanagement are not only allowed to exist but are being viewed by the government as the potential saviors of the American housing industry. A clear risk is growing that if the Federal government does not provide an explicit guarantee, the markets will not provide the requisite funds. However, the Federal government may not be able to make this guarantee for more than a very short period. By taking on the responsibilities of these two companies, the United States will double its financial obligations.