FNMA/FHLMC are now the problem of us Taxpayers

By: Drew Sygit

CMPS, CMLO, CALO, MBA

As predicted yesterday (read what I wrote yesterday that Keith Stonehouse beat me to posting - Thanks Keith!), Treasury Secretary Henry Paulson announced earlier today that the two Government Sponsored Enterprises (GSE) have been put into federal conservatorship.  The CEO's of both companies were alse removed.  The move extends up to $200 billion of taxpayer money to the GSE's.  Paulson's announcement can be read at (Read what Paulson said.)

The move was made to atabilize the credit markets as a failure by either of the entities would have roiled the world's financial markets.

Even with the takeover, it's not known what effects the real estate and mortgage markets will face.  It's thought that the government wants to reduce the siz and possibly merge the two entities.  In either case, the government will suredly limit the types and amounts of mortgages that the two will buy from lenders.  This could in turn affect the sale of houses and lead to further price drops.  Lenders may be forced to hold onto more mortgages and put them on their books instead of treating them like cashcows and selling them to FNMA/FHLMC.    Expect underwriting standards to toughen some more.  Mortgage brokers (like myself) will be more highly regulated and many forced to exit the business. 

Overall in the long run, this will be good for the economy and the real estate industry.  Similar steps were taken during the Great Depression and that didn't turn out so bad:)

The only major negative of all this will be the increase to the national debt.  Politicians have made a mess of this country's finances!  Instead of this bailout being the exception to the rule and easily absorbed, it's being piled on top the Iraq War and all the other overspending, which is just going to put more pressure on the dollar and inflation.

Anyways, it may be prudent of me to start considering a career change, so I'm prepared for the worst.  Anyone have any suggestions?