Examining bailout's fallout
The Star-Ledger, September 9th, 2008
The Star-Ledger Archive COPYRIGHT © The Star-Ledger 2008
Date: 2008/09/09 Tuesday Page: 023 Section: BUSINESS Edition: FINAL Size: 717 words
Examining bailout's fallout
Weighing the future of Fannie-Freddie plan By SAM ALI STAR-LEDGER STAFF
Like it or not, today, every man, woman and child in America became a Fannie Mae and Freddie Mac shareholder.
From the get-go, the two quasi-government entities, which purchase over 70 percent of all new home mortgages in the United States, had an implicit guarantee taxpayers could be on the hook if things went awry.
That day has arrived. 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.
"The treasury is giving Fannie and Freddie a vitamin B12 shot," said Tracy Cavanaugh, a mortgage planner who runs Neptune based the CS Advisory Group.
Mortgage rates did fall on the news, but the long-term effect isn't as clear. The Star-Ledger asked a number of experts to discuss the affect of the move on taxpayers, consumers and shareholders. Here's what they had to say.
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."
– Gibran Nicholas, chairman and chief executive of the CMPS Institute in Ann Arbor, Mich., and a certified mortgage planning specialist
With a still-falling real estate market and delinquency rates on the rise, it's a bet that only the government would make today.
– Chip Hanlon, president of Delta Global Advisors, based in Huntington Beach, Calif.
The government is currently only paying around 4 percent when they borrow money. If the government invests these borrowed funds by purchasing Fannie and Freddie bonds at say, 6 percent, they will earn a 2 percent profit on the difference between their cost of funds and the return on investment.
Therefore, consumers benefit twice from this plan: first from lower mortgage rates, and second, from the government making a profit on their investment." – Nicholas
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." – Ann Lee, adjunct finance professor at Pace University's Lubin School of Business in New York
– Michael Pento, senior market strategist, Delta Global Advisors
Sam Ali may be reached at sali@starledger.com