Fannie Mae

-www.thedigeratilife.com

Data Consolidated from bits of information from http://www.wikipedia.org/

Well the above is a brief idea of how Fannie Mae fell back to the government's hands. But it was really a tough crisis, too tough a one for Fannie Mae and Freddie Mac to handle, considering that they hold more than 50% of all the mortgage in United States.

With the arrival of the subprime mortgage crisis, everyone was sinking into the stage called "negative equity". Basically, negative equity means that the worth of the property, which you used as a collateral to make a loan, has plummeted to a stage whereby it is lower than the outstanding balance on your loan.

To put it in layman terms, you used 50% of your house (the house is worth 2million dollars) as a collateral to make a mortgage loan of 1 million dollars from the bank, but six months down the road, the price of your house dropped by a total of 60%. Therefore, the net worth of your house is now only 800,000 dollars. This is in fact lower than your outstanding balance on your loan, hence, you sink into negative equity. In this case, the bank will usually initate foreclosures to ensure that they do get back some money. If recourse is stated in the agreement, then the borrower will have to pay the bank the remaining 200,000 even after selling the house, that is not even inclusive of the interest rate per se.

With the current housing crisis, a lot of people are sinking into negative equities because alot of people simply cannot afford to pay back the mortgage, therefore they are forced to sell away their houses to pay back a porton of the mortgage. This large influx of foreclosures resulted in a sudden surge in the number of houses available in the United States. As a result, by economies of scale, the prices of the houses plummet as well. This in turn makes the lender wary of the financial market too, and they respond by tightening the regulations for a loan. More often or not, the regulations are relentness in nature and people simply cannot afford to make a loan from the bank. In turn, Fannie Mae has lost a lot of businesses and also incurred alot of losses as a lot of people failed to pay back their mortgage.

The above is merely a rough idea of the situation of Fannie Mae, feel free to add more of your comments if you have anything to say.