Bay Area Real Estate Finance

Don’t bring Henry Paulson with you to Las Vegas.

Paulson asked Congress for the right to use taxpayer funds to intervene - but hoped the pledge alone would be sufficient. “If you have a bazooka in your pocket and people know it, you probably won’t have to use it,” he said at a July 15 Senate Banking Committee hearing.

But now Paulson is readying the bazooka, because the markets didn’t respond as hoped. Shares in the companies bounced back from multiyear lows in recent weeks, but bond markets have not regained confidence in Fannie and Freddie.

Investors and bond markets have all called Paulson’s bluff. Fannie Mae and Freddie Mac are now going to be under government control in the form of a temporary conservatorship.

The Fannie and Freddie bailout has fired the top executives and left the government “temporarily” in charge of operations.  Meanwhile, investors and foreign speculators are assured of these securities because they are now backed by the American Taxpayer.

But What Does This Mean for You?

Shareholders and Employees - Unfortunately, these are some of the losers who will suffer because of the bailout.

CEO Daniel Mudd & Richard Syron - Well, say goodbye to your jobs, but say hello to your final payday.  Investors are outraged since each of these two will be leaving with $9.3 and $14.1 million respectively per their agreed severance pay retirement contracts.

Current Homeowner - If you were thinking of refinancing, this bailout might help you see an improvement in mortgage rates. But don’t expect tightening guidelines to loosen up. In fact, don’t be surprised if some banks tighten up their standards.

First Time Home Buyers - This should keep your prospective search up and running. The bailout essentially attempts to stabilize this housing market and stimulate more activity. You are the hope of this nation - if there is any hope to stabilize prices and drop the increasing inventory of stagnant homes, it falls the hands of first time home buyers.

Troubled Borrowers - Looking to modify your loan, this bailout just might keep your hopes alive.  Lenders have already been modifying loans, but this bailout stands to set an example. If the government is willing to step in and prevent the failure of these two giants, it would not be a surprise if more pressure was applied to help troubled homeowners.

American Taxpayer - Unfortunately, this bailout is funded by you the American Taxpayer. Fannie and Freddie will continue to operate normally except for one small detail; taxpayers will be responsible for future losses of the entities.

I know a lot of people are going to be upset because they are now responsible for these losses. But if i can bring up one point that is worth mentioning, it would be this:

Fannie and Freddie were really the only ones buying loans from banks since pretty much all the other investors are now extinct. If they did fail, it would be impossible for anyone to get a home loan. No one could buy a home, homes would sit on the market, and home prices would sink even lower. Then, equity slides even further, and well you get the point - chaos.

So while news outlets are publicizing the fact that taxpayers are paying for this bailout, the truth is, you would have paid for it either way. It’s a sad truth and that is why everybody is hoping for a reform of these two massive “too-big-too-fail” entities.

Interested, Confused? Read more about how Fannie and Freddie Operate.

Also, see what our presidential candidates, McCain and Obama, have to say about this: Reuters and Bloomberg