Is The Government Jumping Into The Mortgage Market

We have been tracking the real estate market on a daily basis and reporting the rise and fall of the recovery due to the Federal Government getting involved in the mortgage market and real estate market. Our readers have tendered several questions on this subject, and recently "Harry" asked the following question:

Hi Joe - I was not a fan of the government stepping in and trying to save the mortgages of people that overextended themselves. I felt that doing that simply delayed the inevitable failures - it added more national debt - and it prevented the housing prices from  bottoming out. Do you think the government is done with jumping into the mortgage market? -Harry

The short answer on this is "no," the government is not done with it's interaction in the mortgage market and housing market. The GSEs (Government Sponsored Entities) known as Fannie Mae and Freddie Mac are pseudo private enterprises that the government forced poor procedures upon and now are basically kaput!

Harry's question is very timely, because today is the day that Treasury Department has been ordered to submit a recommendation for restructuring Fannie Mae and Freddie Mac. Why is this so important? Here's what John Sununu had to say about the GSEs in today's Boston Globe:

Consider the facts: since the beginning of the financial crisis, the two private companies have cost American taxpayers over $130 billion. Last week, adding insult to injury, it was revealed that taxpayers have also been stuck with $160 million in legal bills to defend former executives against fraud claims. By comparison, the Capital Purchase Program, the largest component of the TARP, will ultimately return more to the Treasury than the $205 billion that was originally lent out. In short, taxpayer losses from Fannie and Freddie will dwarf the cost of any other financial bailout by a factor of ten.

In summary Harry, the foundation of the Government's involvement in the mortgage market (Fannie Mae) is very, very broken. Unfortunately, it appears as if the Treasury Department is going to miss today's deadline and it won't be tendering a restructuring plan for Fannie and Freddie ... which ultimately means that the Government will be involved (we'll say heavily involved) in the mortgage market for years to come.