The default of up to $500bn of Fannie Mae and Freddie Mac credit derivatives contracts triggered by the US government’s takeover of the mortgage groups could result in billions of dollars of losses for insurance companies and banks who offered credit insurance in recent months. The potential losses, as well as uncertainty about exactly how the derivatives contracts will be settled and unwound, are putting strains on the unregulated $62,000bn credit derivatives market, which has been a target of regulators worried about the hidden risks it could hold for the financial system. The exact number of credit default swaps outstanding on Fannie and Freddie are not known, reflecting the private nature of the sector. But dealers and analysts estimate there could up to $500bn of contracts outstanding.

This entry was posted by Gwen Robinson on Thursday, September 11th, 2008 at 5:42 and is filed under Capital markets. Tagged with Fannie Mae, freddie mac. Edit this entry.