The federal government, through an agency called the Federal Housing Finance Board, is taking over the management and control of Fannie and Freddie in hopes of stabilizing the housing and financial markets. Here is what some experts have to say about the potential benefits and pitfalls of this bailout.
"The current lack of mortgage bond buyers in the market has dried up liquidity for mortgage lenders, driving mortgage rates higher, "says Gibran Nicholas, chairman and chief executive of the CMPS Institute in Ann Arbor, Michigan, and a certified mortgage planning specialist. "Now that the U.S. government will be creating more demand in the marketplace by purchasing Fannie and Freddie mortgage bonds, homeowners and buyers should start seeing lower mortgage rates and enhanced mortgage options." In addition, the government used borrowed money to bailout the companies, which will add to the growing federal budget deficit. Some experts say that consumers will benefit twice from this plan: first from lower mortgage rates, and second from the government making a profit on their investment due to low interest rates on their borrowed money.
Dissenters point out the pitfalls: Ann Lee, adjunct finance professor at Pace University's Lubin School of Business in New York emphasizes, "This 'temporary' government intervention will probably go on for years, if not decades...We shouldn't even pretend we have a capitalist society or even a democratic one since only a couple of individuals who are not democratically elected are wielding so much power over the economic lives of everyone in our nation and the world." Michael Pento, senior market strategist of Delta Global Advisors believes that "the government does not have a plausible exit strategy" and that this will be the biggest problem with the bailout. "We most likely permanently socialized a good portion of the real estate market and the economy," he says.