The scariest thing we read today...

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...Was not about Countrywide’s earnings or an 800% spike in foreclosures. It was this Business Week article about Fannie Mae and Freddie Mac and their growing exposure to the subprime meltdown.

We’ll start with a couple of anecdotes about houses they own because of foreclosure: ‘Fannie has a ‘charming colonial’ on the market for $7,000 in Detroit, despite the $59,000 outstanding on the loan. The property, repossessed in May, has been looted, with the kitchen sink and drainpipes stolen. Meanwhile, agent Debbie Leslie of Le Valley Real Estate has cut the price on a home Freddie owns in Flint, Mich., five times this year, from $10,900 to $5,250. The mortgage is $26,250. ‘We’re waiting to see where the floor is,’ says Leslie.

‘Driven by market competition and regulatory mandates, the two have become big buyers of adjustable-rate mortgages, or ARMs.... The two have also moved more prominently into low-documentation loans, which require little or no proof of the borrower’s income.... ‘We don’t know how much trash is on their balance sheet,’ says Josh Rosner of researcher Graham Fisher & Co. ‘It seems they’ve shot themselves in the foot.’’

We have questions: Are Fannie and Freddie in trouble? And if they are, how does that play out? We happen to think this is a good question for presidential candidates: Is there an implicit guarantee of a federal bailout of Fannie and Freddie? And if they run into trouble, would you support a bailout?

A particularly interesting question for Hillary Clinton, given that ‘Friend of Bill’ Franklin Raines ran Fannie into a $6.3-billion accounting scandal.

Hat tip: Patrick.net