Bye-bye Fannie and Freddie; hello Uncle Sammy…

The U.S. federal government, citing the need to protect the interest the financial system, mortgage availability and taxpayers, will take over the devastated mortgage giants Fannie Mae and Freddie Mac.

Treasury Secretary Henry Paulson explained the decision to bail out the two companies who account for about half of all outstanding mortgages in the U.S. stating, “Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a failure of either of them would create great turmoil in financial markets here and around the globe.”

Fannie Mae and Freddie Mac have lost billions in the U.S. housing crash over the past several years and further losses would result in bankruptcy as more homeowners default on loans.

Federal Reserve chairman Ben Bernanke acknowledged the importance of the bailout noting, “These necessary steps will help to strengthen the US housing market and promote stability in our financial markets.”

Under the deal the management teams of each company will be replaced and the companies will be given access to extra funding to run their business. The Federal Housing Finance Agency will administer Fannie Mae and Freddie Mac until a long-term solution is set.

So all of a sudden we , as citizens, all become part owners of a mortgage company, since it is our money and our government that is now the world’s largest mortgage holder and mortgage guarantor. I guess we won’t have to worry about calling it Frannie Mae after all; we can just call it Uncle Sammy.

There could be really interesting turns to this whole saga, now that the politicians in Washington will get a shot at it. The Democrats will likely want to suspend all foreclosures, for fear that they hurt the owners self-esteem and the Republicans will want to sell the whole thing to some cronies on the theory that some good will trickle down to the poor homeowners from their fat cat friends.

We can expect to see much finger pointing, pontificating and harrumphing in Washington in coming weeks and months, as they go through their “find someone to blame” charades. Then they’ll find a way to dump tons of good money after the bad then sell off everything for pennies on the dollar.

Perhaps the TV folks could make a daily reality show out of the whole thing. It would have to be better than much of what is on TV now. They could get Howie Mandell to put people’s mortgages in one of the 20-something cases and let them play deal or no deal for it. Based on what I’ve seen of people’s greed on that show, they’d mostly end up with nothing and still owe their mortgage, but it would be fun to watch.

I suppose that this is good for real estate in the long run; but, in the short term, I can’t imagine this speeding up the process of cleaning out the foreclosure inventory or short-sale houses. Anyone who has ever dealt with the federal government can’t believe that this will speed things up. Perhaps if they declare some sort of moratorium of foreclosures for a while, that would help get the inventory down; but what happens when they have to deal with the huge overhang of bad loans that they’ve just assumed? There is still a big bullet to be bitten by someone, sometime and we all know where that money is coming from, don’t we? I suspect that Uncle Sammy will end up like the guy on the left, before this is all over. Maybe that's just a taxpayer dressed up in an Uncle Sammy the mortgage broker outfit. I think I'll go stare at my green dot for a while. Uuuhhmmm!