NEW YORK (Fortune) — Here’s a scary, and relevant, question to ponder as the housing market continues to slide: What would it take for the government to step in and help Fannie Mae and Freddie Mac, and how would a rescue affect you, the taxpayer? It’s been a brutal week for Freddie and Fannie. A Lehman analyst report Monday kicked off a stock rout that had shares in both mortgage lenders hitting fresh multi-year lows Thursday. Freddie was down 19% in afternoon trading; Fannie was down more than 10%.
Fannie Mae and Freddie Mac are government-sponsored enterprises that help the mortgage market function by purchasing pools of loans and packaging them into securities. If one or both couldn’t function, the result would be chaos. “If Fannie or Freddie failed, it would be far worse than the fall of [investment bank] Bear Stearns,” says Sean Egan, head of credit ratings firm Egan Jones. “It could throw the economy into depression or something close to it.” More
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