For Overcoming Foreclosure Crisis Freddie And Fannie Need To Be Bailed Out

There is a strong view that to overcome the present foreclosure crisis it is necessary to bail out Fannie Mae and Freddie Mac. This will be an urgent immediate solution to heal the scars. Credit crunch is affecting the mortgage industry and in a chain reaction the entire socio-economic fabric of the nation. Fannie and Freddie hold the key to the solution.

Fannie Mae and Freddie Mac are two semi-public corporations holding about half of all the house mortgages of USA. They are suffering astronomical losses running into billions of dollars, because of the sub-prime fiasco. Their predicament holds at ransom the entire country because capital cannot be raised to keep the wheels of the economy running.

Last summer Congress passed a law to authorize such a lifeboat for the jumbo mortgage giants. By it private shareholders would benefit at the cost of taxpayer’s money. This side of the action is politically ruinous and unpalatable but without doing so the situation will worsen with global ramifications. An early bail out seems to be the only option. It will make available credit for sanctioning fresh mortgages and this will melt the freeze in the real estate market where houses are rotting in the cold storage.

As per plans, the government will resort to buying billions of the company’s stock that would pay for the dividends. Fannie Mae and Freddie Mac would then be able to live up to their promises to investors from all over the world. This will revive the confidence in them that had taken a bad shaking.

Senator McCain has been a long-standing critic of Fannie Mae and Freddie Mac. He feels that the present management together with its board of directors should be shown the door simultaneously with the bail out. Senator Obama feels that soon a choice will have to be made between making the institutions totally public or private. Both Democrats and Republicans are focusing their attention on the two jumbo mortgage giants.

Meanwhile house owners are caught in the status quo fix. In Maryland the value of property dropped by 4% in April and June as compared to the same period in the previous year. It calculates to the 7th largest fall in the country. The figures related to the reo properties that have recently been sold. Many more are waiting in the wings. The more the supply the less will be the price according to infallible law of demand and supply.