THE GOVERNMENT’S decision to take control of the national mortgage giants Fannie Mae and Freddie Mac makes sense.
For the past two months, the U.S. Treasury has been shoring up the corporations financially, hoping to avoid a complete meltdown in the mortgage industry. But it was known from the beginning that both Fannie Mae and Freddie Mac had management problems that were complicating efforts to keep them stable. If the federal government was going to put billions of dollars into the effort to keep the two afloat, it needed to have its own management teams running them.
The takeover is going to be expensive. Early estimates of the cost to put the corporations back on a sound footing ran as high as $100 billion of public money. Why should taxpayers spend that much? According to The Associated Press, the two corporations hold or guarantee $5 trillion in home mortgages. Allowing the corporations to fail could wind up costing taxpayers far more than $100 billion.
And, once Fannie Mae and Freddie Mac are stabilized, the government, as owner, can use their profits to repay the treasury.
The mortgage crisis is the result of a number of factors — ill-advised government deregulation, investor greed and bad decisions by management. It will take a while to clean up the mess.
But the decision to take control of the two biggest players in the home-mortgage market is a good one. It should save the nation and individual mortgage borrowers a lot of grief down the road.
Patrick S. Kelley
Editorial Page Editor