Fannie, Freddie News Not Shocking

The U.S. taxpayer will be bailing out Fannie Mae (FNM) and Freddie Mac (FRE) after all.  Announced over the weekend, the federal government will be absorbing the enormous amount of mortgage loan defaults from the government-sponsored entities (GSEs) that have helped sag the U.S. economy overall for the past year.

An AP report out Sunday discusses that Wall Street will react favorably to the news Monday morning, shoring up and staunching the flow of the troubled mortgage market, which has recently shown signs of hobbling the global economy, as well.  The story said the Bush Administration “removes a huge cloud that had been hovering over skittish markets.”

Without the bailout, Fannie and Freddie had been hurting badly for the past several months.  Even recently, analyst estimate revisions have been sinking like a stone for both companies, and both had posted triple-digit negative earnings surprises in their last reported quarter.  But the main positive here appears to be not the near-term direct affect on Fannie and Freddie themselves, but the security with which the market can resume it trading going forward.

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