Fannie, Freddie Bailout Helps Market Not Troubled Homeowners

The taking of Fannie and Freddie into conservatorship was in motion since a Friday meeting between Fed Chairman Bernanke, Chief Regulator Lockhart, Treasury Secretary Paulson and Fannie and Freddie leadership. Owning or guaranteeing more than half of American's mortgages these monstrous entities were growing failure concerns.

Secretary of Treasury Henry Paulson said the takeover became necessary to prevent unprecedented turmoil in the markets should the mortgage institutions fail.

Paulson has already lined up the first moves to shore up the entities. Using his newly legislated powers the US Treasury is expected to pump up to $100 billion of investment into each company in the form of preferred stock purchases, as needed. In addition, the government will buy up $5 billion in mortgage-backed securities and receiving 80 percent of each company in warrants.

Quickly, on reports from the Mortgage Bankers Association that nearly 9 percent of homeowners are past due on payments, concerns surged that the mortgage crisis is moving into good credit mortgages as well. This trend was certain to quickly strip Fannie and Freddie of their remaining capital cushion.

The challenge still becomes what to do to stop the free fall. The government plan seems to be aimed at driving down mortgage rates and getting homeowners back into the market for affordable housing. Taking the risk out of financing ongoing mortgage debt and removing the recently increasing rising fees Fannie and Freddie had been applying to new mortgages should achieve the goal.