The Bailout Of Freddie And Fannie That's Not A Bailout

George Bush denied that the federal assistance to the two mortgage giants was a federal bailout. So I am confused as to what to call the $25 billion dollar tab that the American taxpayers are picking up to save the two companies (that were started with government money btw). The woes of the mortgage industry continue to ripple across the national and even international economy. To counter bad times, the President expects the taxpayer to pick up the tab, instead of the greedy corporations that helped to start the mess we are in. Of course, the hook to this is that they say it probably won't be needed.

From The NY Times:

The budget office said there was a better than even chance that the rescue package would not be needed before the end of 2009 and would not cost taxpayers any money. But the office also estimated a 5 percent chance that the mortgage companies, Fannie Mae and Freddie Mac, could lose $100 billion, which would cost taxpayers far more than $25 billion.

But what do they really know?

Mr. Orszag, at a briefing with reporters, acknowledged that pinpointing the eventual cost of the package was impossible. “There is very significant uncertainty involved here,” he said.

So if our "investment" works out it'll be good for us, right?

Mr. Orszag said that the analysis by his office did not distinguish between the different forms of aid that might be offered — a credit line or a stock purchase — and that the analysis showed no short-term potential financial benefit for taxpayers even if Fannie Mae and Freddie Mac perform well.

But he said the analysis found substantial risk for taxpayers if the companies had steep losses and would not say if his office had analyzed the implications of a full government takeover of the companies.

Ah so we're basically screwed either way, and guess who the winner in all of this is? The executives in the custom-tailored suits that have run this ship too close to shore. The only question is how close will it get before irreparably damaging the economy.

Boom And Bust In The Housing Market

For a few years many people were enticed by low mortgage rates offered by an insurance industry that suckered people into a bad situation. Senator Chuck Schumer released a report on the upcoming spike of foreclosures that is going to hit his hometown burrough of Brooklyn especially hard. The lenders that offered homeowners what looked like a good deal is going to leave thousands homeless.

From The Bayridge Courier:

The most popular “affordable” subprime loans are adjustable rate mortgages that offer an initial fixed rate that is set low.

But the rate resets after an initial fixed rate period to a more onerous rate that leads to a significantly higher mortgage payment that low-income borrowers will have difficulty affording, Schumer said.

Schumer’s analysis showed that in the next two years, 91,000 families will be at risk of foreclosure because of these lending practices. In the New York Metropolitan area alone, an estimated 53,000 families will see their mortgages reset to onerous rates, he said.

“The bottom line here is that the subprime bust is leading us right into a foreclosure boom, and thousands of Brooklyn residents will be left in the lurch,” Schumer said.

I think it is great that Senator Schumer is finally highlighting this serious issue that leaves thousands homeless from predatory lenders. My question is why did it take so long? Schumer is no stranger to the world of finance, thats for sure. The article also interviewed experts around New York on this and they have the same question.

Oda Friedheim, a staff attorney with the Legal Aid Society said the issue is nothing new.

“Too bad it took Wall Street’s pain to put the problem on the spotlight,” she said. “They have a bellyache because they swallowed too many bad loans,” she said.

“Our clients have been suffering for years under these abusive mortgages,” she added.

Deyanira Del Rio, the associate director of the Manhattan-based Neighborhood Economic Development Advocacy Project has been tracking mortgage lending and foreclosure data for the past seven years.

“What we have seen is that consistently higher priced mortgage loans are overwhelmingly concentrated in neighborhoods that are overwhelmingly black and Latino,” she said, noting her group will soon release a study showing this trend.

So why the outrage now Senator? It is unfortunate that it has to come to this to help out people that have been targeted for financial exploitation. Hopefully his intentions are genuine and meant to help those in need and not the Wall Street crowd.