Washington Post (08/22/08) P. D1; Birnbaum, Jeffrey H.
Experts are concerned that Fannie Mae and Freddie Mac's troubles could further depress the housing market, given that they own or guarantee 70 percent of newly issued home loans. Interest on 30-year, fixed-rate mortgages has already jumped 0.5 percentage points or more due to the government-sponsored enterprises having to pay premium interest rates on money borrowed from investors, according to Moody's Economy.com, which predicts a 5 percent drop in home prices tied to efforts by Fannie Mae and Freddie Mac to strengthen credit. According to Brookings Institution economist Robert Litan, "Fewer people are willing to buy property, which contributes to a decline in housing prices and that leads to more foreclosures and higher loses, which hurts Fannie Mae and Freddie Mac, which pull back by tightening their mortgage terms, thus continuing the cycle."
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