It appears, our government thinks the Fannie (FNM)/Freddie (FRE) experiment is working well despite evidence to the contrary. Below are some facts about Fannie Mae and Freddie Mac posted by Bloomberg which show the struggles of Fannie & Freddie:

-          Fannie Mae has taken $44.6 billion of Federal Aid since April 2009

-          There were 2.6 million defaults on residential mortgages through the first 9 months of 2009

-          Fannie Mae recorded $101.6 billion in losses over the past eight quarters

-          Fannie Mae now says it needs $15 billion more in Federal Aid

-          Freddie Mac has borrowed $50.7 billion from the government since November 2008

-          Fannie Mae had a negative net worth of $15 billion as of September 30, 2009

The support of Fannie and Freddie is literally sustaining the housing market at current prices. Together, Fannie and Freddie now guarantee 20% of the $12 trillion of residential mortgages in this country. That means $2.4 trillion is on the tax payers balance sheet. Why is the government extending the $8,000 tax credit for home buyers to April 2010? The government is throwing money at the crisis not fixing it, how long can the government keep the life support going for the housing market?

Fannie and Freddie together account for 70% of all new mortgages. Coupled with the FHA's 20%, the government-backed percentage of the mortgage market comes to 90%. The residential housing market is being propped up at current prices by the government; just 10% of new mortgages are not backed by the government.

The Fannie/Freddie (quasi-government entities) thing has not worked out very well (see above facts). They both played a role in creating the biggest credit bubble in history.

People cannot afford current housing prices because they are still way out of line with historical housing values. So the US Government will fudge the prices by providing an $8,000 subsidy and artificially low interest rate loans. But the real cost for these current programs have to be paid for in the future. Real losses to the tune of billions or even trillions, in actual losses will be funded by, and the responsibility of, the taxpayers.

A rational solution is, to let prices clear but I do feel a larger and easier program to execute mortgage modification program is the way to go. Let house prices go where they may. Sure, today's rally feels good. Eventually, reality sets in. When it does the failures of Fannie & Freddie could be the cause of a future financial crisis.