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Problems at Fannie Mae, Freddie Mac ripple outward

The crisis of confidence surrounding the home-loan giants is raising mortgage rates and could delay a housing recovery.

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Even if the twin giants of America's mortgage industry don't end up needing a taxpayer bailout, the troubles of Fannie Mae and Freddie Mac have big implications for ordinary Americans.

It's not an exaggeration to say that the cost of mortgages, home prices, and even the health of the broader economy hangs to some extent on these mammoth providers of credit. Together, Fannie and Freddie account for about half of outstanding home financing in the nation.

Now, with the housing market in deep downturn, shareholders have been bailing out as they look at the financial risks these firms face. The tougher their road gets, the higher it may push mortgage costs – possibly delaying any recovery in real estate.

Officials worked overtime Friday in an effort to calm a sense of panic. Experts generally say neither Fannie nor Freddie is on the brink of insolvency. But it appears that, at a minimum, they'll need a a private-sector solution – a new infusion of capital from investors – to weather the housing storm.

"They're clearly in deep trouble," says Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa. "It does highlight the severity of the housing downturn.... Even Fannie's and Freddie's borrowers are in trouble."

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