I can just see Ogre from Revenge of the Nerds now...

You may be wondering why there is so much concern regarding Fannie and Freddie. In the immortal words of Ogre..."THIS WHY!"

From an article in Bloomberg today:

Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans. Foreclosed houses sell at an average discount of about 20 percent, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc. At that rate, the two mortgage companies stand to lose $1.39 billion on the foreclosed houses they currently own.

I think 20% is extremely optimistic in this environment. One of the homes that Fannie Mae is holding is a home in Flint Michigan that sold for $110,000 in 2005. It's been lowered to $5,000 and still can't be sold. Houses in distressed areas that are populated with low income people have almost zero chance of being sold. The only buyers will be investors who may rent and they will require atleast a 40%-70% haircut on the peak price. The exact market that Fannie and Freddie are supposed to back are the most dangerous. This is a lethal combination.

Foreclosures will continue to mount and the losses will be much greater than 20%. Not a pretty picture for taxpayers if the bailout passes.