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Is taxation the answer to the real estate meltdown?
The headlines are pretty much the same on the tube, in the newspapers and on the internet: A homeowner rescue bill could cost American taxpayers an estimated $25 billion to save Fannie Mae and Freddie Mac.
Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Mortgage Corporation) are the nation\'s two largest mortgage finance lenders. Operating since 1968 as government sponsored enterprises, the pair today own or guarantee almost half the nation's $12 trillion mortgage market.
The recently proposed bill to rescue Fannie and Freddie has its equal share of supporters and detractors from each party in Congress. Yet both sides appear to agree on one thing - something has to be done—preferably sooner than later--to help calm investors and stabilize the financial markets.
The bill is expected give $4 billion to neighborhoods taking the brunt of the housing crisis, essentially helping thousands of homeowners refinance their homes into more affordable, government-backed, fixed rates loan.
That is the good news.
The troubling part is that some critics regard the bill as an open-ended offer of support that would expose taxpayers to losses in the billions.
According to one news report, when the country faced a similar savings and loan bailout back in 1988, the initial projections of needed funds provided by the General Accounting Office (GAO) at that time ranged somewhere between from $26 billion to $30 billion. However, the final tally was actually about $132 billion, well before the savings and loan industry chipped an additional $40 billion.
So, are there any proposed alternatives to utilizing taxpayer money?
One alternative proposed by a member of congress is to privatize Fannie and Freddie as part of any strategy to rescue them. And there unfortunately does not seem to be many other clear cut alternatives other than "Do something!" concepts.
Nevertheless, despite initial reservations expressed by President Bush, Congress passed the bill in a rare Saturday session on July 26. Regarded by some as the most significant housing legislation in decades, it will provided mortgage relief for some 400,000 struggling homeowners, as well as offer a temporary financial lifeline to Fannie and Freddie.Time will tell whether this controversial move will result in significant costs to American taxpayers, bring stability to the U.S. financial market and/or calm investor fears amidst the global capital markets. Lysa Allman-Baldwin possesses over 12 years of experience as a Freelance Writer. Her feature articles covering a wide variety of topics appear regularly in several print and on-line publications.
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