Taxpayers: You Are Now on the Hook for Fannie and Freddie

The U.S. government is planning to put Fannie Mae and Freddie Mac under conservatorship (thanks, markzero, for putting me on to this). This means that, unlike the takeover at Bear Stearns, the government is straight taking over the ailing mortgage lenders, rather than merely guaranteeing the transaction. Any losses that come from Fannie and Freddie will have to be completely absorbed by the taxpayers now. And the investors in the two companies probably won’t even get the nominal compensation the Bear Stearns investors received.

Of course, it’s kind of a necessity at this point. After all, with Fannie and Freddie responsible for significantly more than half of the mortgages in this country, it would be rather devastating to the entire economy for them to fail. So the government steps in.

I think now is a good time to hope that not too many mortgage loans have been taken over or made since the loosening of standards that the government allowed earlier in the mortgage market crisis to help ease things.