Government Takes Over Fannie Mae and Freddie Mac

September 7, 2008 12:00:00 AM PDT
For the second time in two months, The U.S. Treasury has stepped in to help two of the nation's biggest mortgage companies get their house in order.Fannie Mae and Freddie Mac are being placed under federal control and the U.S. government is taking over the two massive corporations at the heart of the country's mortgage system.

Together, Fannie and Freddie own or guarantee more than half of the U.S. mortgage market.

For now, the federal government will back any liabilities until the two companies manage to sort out their finances. The latest bailout could end up costing taxpayers tens of billions of dollars -- but the U.S. Treasury Secretary said not doing anything would have been much worse.

Hours after Treasury Secretary Henry Paulson announced the latest bail-out for the mortgage giants, the president of Fresno's Association of Realtors expressed optimism about the plan. "I think it really could bring stability to the mortgage market and that's what we need right now," said Don Scordino. Scordino said the local housing market is picking up and he believes the government's plan will bring new opportunities for those trying to enter the market.

Local economist Henry Nishimoto said consumer confidence will also get a boost because the treasury secretary's plan includes new government controls over the mortgage industry. "He wasn't willing to do that without some guarantees that the government would have some control over future operations to prevent any further or future disasters in the housing markets like we just witnessed," said Nishimoto.

Nishimoto said there is a downside to the plan, though, because of the government regulation. "There are going to be more regulations in the housing market, and it is going to be harder for people not just across the country, but here in the valley to buy homes in the future. There's going to be more hoops they're going to have to jump through," said Nishimoto. He said the downfall of Fannie Mae and Freddie Mac raises questions about whether the private sector is capable of regulating themselves and the government felt it had to step in order to protect the consumer.

Though the plan could cost taxpayers billions, Treasury Secretary Paulson said the move protects the U.S economy and the world's financial markets. "It is a drag on our economic growth and at the heart of the turmoil and the stress of the financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us," said Paulson.

The presidential candidates are also weighing in on this issue. Republican John Mc Cain said he is opposed to a classic bail out, while democrat Barack Obama supports it.

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