Fannie-Freddie Merger: The Math Adds Up

As both companies plummet, combining them might make sense
By Clay Dillow,  Newser Staff
Posted Sep 2, 2008 10:54 AM CDT
A merger between Fannie Mae and Freddie Mac, the mortgage giants who are bleeding money doing the exact same things, is starting to make more sense.   (AP Photo/Manuel Balce Ceneta, File)
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(Newser) – With Fannie Mae and Freddie Mac struggling to stay afloat, arguments for a merger are gathering steam. “Sometimes size can be a strength,” writes Andrew Ross Sorkin in the New York Times. The companies spent $1.825 billion in total overhead in the first half of 2008 doing exactly the same thing; a merged entity could save some $1.2 billion a year.

The merger would come at the cost of some 11,400 jobs, Sorkin acknowledges, but “pink slips are bound to be part of any fix.” A merger could also cut $1.8 billion in foreclosure costs and trim $300 million annually through increased leverage, creating as much as $19 billion in value overnight. “It would instill a huge amount of confidence,” one investment firm CEO said, and “doesn’t cost taxpayers one nickel.”