On Sunday the federal government took over the two large secondary mortgage companies, Fannie Mae and Freddie Mac. The two mortgage giants own, or guarantee, about half of the nations mortgage debt.
From Quincy Krosby, chief investment strategist at The Hartford. “Right now, Fannie and Freddie are the mortgage market, and that has been choked. If this helps to clear the way for the housing market to recover, it will filter through to the rest of the market,”
The Wall Street Journal has an indepth look at the Fannie/Freddie bailout.
Also, Tom Vanderwell, from Straight Talk About Mortgages, has posted several blogs on the rumors and now the actual bailout of Fannie and Freddie over at Bloodhound Blog. The latest, How We Got To This Place is well worth the read in an attempt to understand the impact of the bailout.
Here is an excerpt from Secretary Paulson which may sum it up from the governments perspective as to why the folks in charge made the decision to go ahead with the bailout. From a Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers
“And let me make clear what today’s actions mean for Americans and their families. Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today.
Tomorrow morning should prove very interesting when the reaction of Wall Street to the bailout becomes a bit clearer.