For a while it looked like the two main players in the secondary mortgage market just might be able to somehow successfully navigate the rough seas they were caught in the middle of. But it wasn't to be. When large investors, among them many foreign central banks, began unloading bonds issued by Fannie and Freddie because they were fast losing value, the writing was on the wall. That trend seemingly convinced Washington that it was time to act decisively and a rather swift takeover was engineered over the past weekend.
Thus far the effect of the major move has been positive. The financial markets world over are now breathing a sigh of relief knowing that the U.S. government was willing, actually forced to do so to prevent a worse calamity, to jump in to bail out these two key home loan market participants.
For these two organizations, the Treasury is now taking the role of a go-to source of funds if need be. It also assumed an intriguing, and a wider, position to bolster the weak mortgage industry. The Treasury is committed to buying new mortgage-backed securities issued by Fannie Mae and Freddie Mac. The extent of that is as of now unknown, but is clearly designed to provide additional liquidity to the marketplace that has recently seen waning interest from once steady investors. This step is perhaps one of the more critical ones of the entire takeover. Healthy demand for these mortgage securities tends to push interest rates down and that in turn will spur would-be home buyers, and refinance candidates, into action and the next thing down the pipe is the residential real estate markets begins to stir in the right direction.
Of course, this bold government action isn't going to fix the much-suffering housing industry overnight. Home values in many areas are still under persistent pressure and foreclosure rates appear to be climbing, so severe imbalances are still out there causing mortgage lenders and investors heartburn and other troublesome ailments. And how much is it going to cost the tax payer? We'll know years from now. Yet, it's a positive measure that'll give the marketplace something firmer to lean on.