Housing, Community Development Programs Spared by Fannie, Freddie Bailout Decision

The takeover of Fannie Mae and Freddie Mac includes a decision to fund the bail out off budget. This means funding for the bail out will not be subject to congressional budget rules requiring off sets for every dollar spent. This provides some assurances that no cuts will occur to housing and community development programs as offsets to fund the bail out.

A potential casualty to the bail out; however, could be the housing trust fund which was part of the bill passed this summer to forestall the mortgage crisis. Funding for the trust fund was based on profits generated from the profits from Fannie Mae and Freddie Mac. A condition of the Federal take over ensures that the Federal government is the primary beneficiary of any profits generated by both entities. Therefore, shareholders are at the back of the line of any efforts to recoup losses from the devalued stock of Fannie Mae and Freddie Mac. Even with assurances that the Federal government is the primary beneficiary of future profits there are no guarantees any of those profits will be directed to the trust fund. This could be a major blow to advocates of the trust fund who worked so hard for years to get the initiative enacted into law. Rep. Barney Frank (D-MA), chair of the House Financial Services Committee, has indicated a commitment to provide resources for the trust fund but it may take years before those funds materialize.

The take over is the right move for the government to do at this time. It will help stabilize the market, keep interest rates low and hopefully result in fairly reasonable affordable housing goals for each entity. Fannie Mae and Freddie Mac's inability to establish clear affordable housing goals has been contentious over the years.

The biggest losers in this takeover are shareholders of Fannie Mae and Freddie Mac stock. According to The Washington Post, Fannie Mae’s stock fell from a 52 week high of $68.60 to 73 cents a share. Freddie Mac’s stock fell from a 52 week high of $65.88 to 88 cents. While staff has been assured their positions and salaries are secure at this time, many have probably seen their retirement fund or college savings eliminated.

Group Publishes a Fiscal Guide for Voters

The US Budget Watch has releases a report, Promises, Promises: A Fiscal Voter Guide to the 2008 Election provides a summary of the policy initiatives proposed by presidential candidates John McCain and Barack Obama. The report summarizes their policy proposals and provides a fiscal estimate of their costs and impact on the Federal budget. The report is part of an initiative by the Committee for a Responsible Federal Budget. The committee is a bipartisan, non-profit organization committed to educating the public about issues that have significant fiscal policy impact.

Interesting Reads

U.S. Seizes Mortgage Giants
Government Ousts CEOs of Fannie, Freddie;
Promises Up to $200 Billion in Capital
By James R. Hagerty, Ruth Simon and Damian Paletta
The Wall Street Journal

What the Takeover Means for Your Mortgage
The Washington Post

Housing market not out of the woods — yet
Fannie, Freddie takeover stops the bleeding, but recovery will be slow
ANALYSIS
By John W. Schoen
Senior producer
MSNBC

Mortgage Giants’ Future: Rebuild or Teardown?
By Stephen Labaton and Edmund L. Andrews
The New York Times

Where Was Sen. Dodd?
Playing the Blame Game On Fannie and Freddie
By Al Hubbard and Noam Neusner
The Washington Post

Mortgage Giants' Mess Falls to Their Regulator
By David S hilzenrath and Zachery A. Goldfarb
Washington Post Staff Writers

How Washington Failed to Rein In Fannie, Freddie
As Profits Grew, Firms Used Their Power to Mask Peril
By Binyamin Appelbaum, Carol D. Leonnin and David S. Hilzenrath
Washington Post Staff Writers

Editorial
Bailout Hide and Seek