Key facts on Fannie Mae and Freddie Mac

Sept 6 - The U.S. government plans to takeover Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, and all shareholders of the two mortgage giants will take a hit, an influential lawmaker said on Saturday.

The move to take control of the two companies, which may be announced Sunday, could amount to the largest financial bailout in the nation's history, and is a bid to ward off further damage to the U.S. housing market which is in its deepest downturn since the Great Depression.

Here are some key facts about the two companies:

FANNIE MAE:

-- Formal name: Federal National Mortgage Association

-- Created in 1938 by Congress as part of a campaign aimed at expanding the secondary U.S. mortgage market and increasing home ownership and rental housing.

-- Annual revenue: $43.71 billion (Dec. 31, 2007)

-- CEO: Daniel H. Mudd

-- Shares touched a 52-week high of $68.60 on Oct. 4, 2007 and fell as low as $3.53 on Aug 21, 2008. They closed at $7.04 on Friday.

FREDDIE MAC:

-- Formal name: Federal Home Loan Mortgage Corp.

-- Created in 1970 by Congress as part of a campaign aimed at expanding the secondary U.S. mortgage market and increasing home ownership and rental housing

-- Annual revenue: $42.91 billion (Dec. 31, 2007)

-- Common stock outstanding: 646.27 million (Jan. 31, 2008)

-- CEO: Richard F. Syron.

-- Shares touched a 52-week high of $64.25 on Oct. 4, 2007 and fell as low as $2.50 on Aug. 22, 2008. They closed at $5.10 on Friday.

WHAT DO THE COMPANIES DO?

Fannie Mae and smaller Freddie Mac are shareholder-owned companies charged by Congress with supporting housing by keeping money flowing in the mortgage market. Due to the congressional charter, the two are often referred to as government-sponsored enterprises, or GSEs.

Due largely to an implied government guarantee, they are able to raise funds relatively cheaply by selling debt to investors. The funds they raise are then used to purchase home loans from mortgage originators such as banks, allowing the lenders to make fresh home loans.

While the collapse of the subprime mortgage market, which caters to borrowers with poor credit histories, has contributed significantly to the U.S. housing slump, the vast majority of mortgages purchased by Fannie Mae and Freddie Mac are prime, fixed-rate loans on which borrowers are current.

Fannie Mae and Freddie Mac bundle the loans they purchase into securities which are sold, with a guarantee of payment, to investors worldwide. In addition, the two companies also guarantee mortgages and pay owners of the loans when there is a default.

SIZE OF INVESTMENTS

The two companies hold some of the loans they purchase and securities they bundle in their investment portfolios. Fannie Mae said its portfolio was $758.1 billion in July, while Freddie Mac said its portfolio was a record $798.2 billion in July.

Including investments and guarantees, Fannie Mae's total book of business topped $3 trillion for the first time in May, twice its size at the beginning of 2002.

With Freddie Mac's $2.2 trillion in investments and guarantees, the two have a hand in nearly half of the entire, $12 trillion national mortgage market.

WHY ARE THEY IN TROUBLE?

As the housing market continues to deteriorate, foreclosures have spread beyond subprime loans to higher-quality mortgages. The two companies have been required to write down their loans held for investment and pay out on guaranteed mortgages that default, depleting their capital.

Fannie Mae and Freddie Mac have reported nearly $14 billion in losses since the housing market bubble burst.

Contrary to many other financial institutions, Fannie Mae and Freddie Mac have never been required to hold much capital relative to their assets. That leaves them with a smaller cushion for absorbing losses.

A lack of capital also indicates they are unable to buy mortgages from lenders.

THE SOLUTION?

Analysts and investors had expected the two companies to raise capital, but their falling share prices made that increasingly difficult.

Fannie Mae raised $7.4 billion of capital in April and May by selling common and preferred shares. Freddie Mac has announced plans to raise $5.5 billion but its ability to do that by selling shares will be difficult given the sharp drop in its stock price.

WHY DOES IT MATTER IF THEY REMAIN SOLVENT?

The two companies' presence in the struggling housing market is widely considered to be critical. They help keep mortgage rates low for many consumers, but the companies are struggling to balance growth through buying loans against rising delinquencies. The companies' debt instruments, which have a high credit rating, are widely held by banks and institutional investors around the world. A crisis in confidence could not only damage the companies but increase the cost of borrowing for the U.S. government.

IS THERE A PRECEDENT?

In 1979, Fannie Mae became insolvent as the market value of its liabilities exceeded the market value of its assets. This turned around as market factors eventually worked in the company's favor. The U.S. government did not get involved.

WHO OVERSEES THE TWO COMPANIES?

The Office of Federal Housing Enterprise Oversight, created in 1992 was the companies' regulator until it was officially replaced by the stronger Federal Housing Finance Agency in recent weeks. OFHEO was widely considered to lack crucial powers to oversee the companies and was replaced by the stronger regulator under the just-passed legislation.