The Real Estate Agent Blog

By Craig Miller
Published on: September 9, 2008

The Bush Administration is planning to take over housing finance companies Fannie Mae and Freddie Mac. Both companies do not have enough capital to continue housing loans according to the Bush Administration. The government will make investments (quarterly is proposed) according to the market conditions.

The government’s plan, created by Treasury Secretary Henry Paulson, would put the companies into a “conservatorship” status (similar to Chapter 11 bankruptcy). The Federal Housing Finance Agency would replace the chief executives, basically firing the two companies current executives.

Fannie and Freddie have funded 70% of the most recent home loans, therefore, being a major part to the recovery of the housing market. With low capital, Fannie and Freddie would need to decrease the amount of loans given to homebuyers, making mortgage rates increase drastically and delivering another hit to the already troubled housing market.

The more complex issue of wheter Fannie and Freddie will become either nationalized or privatized still remains a mystery. The government and financial experts have been debating those issues and some proposals coming from the debates would dramatically change the funding of home mortgages in the US. Paulson and government officials agreed that action had to be taken now before this more complex issue due to fear of Fannie and Freddie’s availability of cash needed for home loans. The take over is the beggining of Paulson’s plan which will leave the more complex and sensitive decisions to Congress and the next administration.

Good luck to the next administration, whether its McCain or Obama, it seems that they have much to repair, economically. We must hope that the next administration addresses this recession (not just debate about it) and does not pass it on to the next person in line, as the Bush Administration has done.