GOVERNMENT TAKE OVER OF FANNIE MAY AND FREDDIE MAC
What it means for Us?

President Bush signed into law a housing bill that aims to boost the struggling housing market and bolster mortgage finance giants Fannie Mae and Freddie Mac.

”Taxpayers foot bill for Fannie Mae, Freddie Mac Bailout”

The government takeover of Fannie Mae and Freddie Mac is designed to make sure that mortgages loans remain available and affordable.

Treasury Secretary Henry Paulson says the government has three objectives: "market stability, mortgage availability and taxpayer protection." That's another signal that the government wants mortgages to remain available, at good rates, to borrowers with a low risk of default.

What Effects Will We See? Mortgage Rate Reduction

What we are going to see immediately is a reduction in the mortgage rates. It is estimated that mortgages rates will drop around a quarter of a percentage point. It's not much but in the long run will help some families.

But why the rates will fall? because the goverment will buy the "papers" or securities that are backed by those mortgages. The goverment is telling the investors don't worry about the papers we will make sure you get your money...
When the risk is lower the rewards are also lower. In this case for the investors that buy those securities. Investors where so scared of buying securities back mortgages because they were too risky. The "market" had to offer them higher rates and that means we have to pay higher interest rates... now with the government backing the mortgages the risk is lower and our rates will be lower too.

But is it true for everyone? No
Mortgages Loans for more than $417,000 ( Jumbo Loans) will have little or no impact. Also the bailout won't affect rates on home equity loans or home equity lines of credit, either.

If the new bailout won't bring any help to people that are already in problems ( Homeowners in Foreclosure) why the government is doing this? Just to help investors?
Yes, and no. If the investor don't buy the securities, the banks don't have money to lend and therefore the economy suffer. On the other hand many people believe that if you invest in something you take risks.
Many of us as homeowners took a huge risk buying our house and the government is not telling us don't worry we will make sure your house is worth what you pay for it. Many or us are losing thousands of dollars and going into foreclosure. Also many 401K and retirement accounts have stocks in Fannie Mae and Freddy Mac and those stocks also lost a high percentage of value. And in the future we taxpaper will foot the bill for the price of this bailout.

Who the Bailout Benefits?

* Departing CEOs of Fannie Mae: Daniel Mudd and Richard Syron of Freddie Mac. They will leave with pay packages totaling milions of dollars.
* Bank of America and Country Wide: they are going to be back in the business of buying mortgages and the goverment will make sure that they get their profits. Their stock raise a 7.8%
* It seems that after the complete meltdown of the housing market the only ones that got some relief is Wall Street.
* Owners of Securities: Chinese Goverment, big banks, etc. The government has guarantee them that their investment is safe

Who the Bailout Affects?

* Taxpayers: we have to foot the bill
* Shareholders that hold common stocks ( Mutual Funds, Pension Funds, Etc): they are going to