The conventional wisdom on the multibillion-dollar federal government bailout of mortgage giants Fannie Mae and Freddie Mac is that they're just too big to let fail. The two companies own or guarantee about half of the country's $12 trillion in mortgage debt.
Another way of looking at this, though, is that all those of us who behaved responsibly during the housing bubble will now have to cover for those who rolled the dice and lost when it came to home prices and mortgage payments.
How much does that bite?
"If Fannie and Freddie were to fail, that could trigger a real banking crisis," said Delores Conway, director of USC's Casden Real Estate Economics Forecast. "This bailout is for the greater good."
It's unclear how much of taxpayers' money will be used for the bailout. Current estimates say it could run as high as $200 billion. That's about $655 for every man, woman and child.
"It's tough," Conway said. "The pain is being spread among consumers who were honest, ethical and forthright."
The bailout of Fannie and Freddie is intended primarily to ensure that funds exist for new home buyers, thus preventing the housing market from tanking further. It's also an effort to placate foreign investors who purchased mortgage-backed securities with the idea that they bore the full faith and credit of the U.S. government.
Fannie and Freddie were private companies. But because they were federally chartered, there was a perception among other countries' central banks that their debt was guaranteed by the U.S. government. It wasn't. But it could be disastrous if foreign investors dumped their holdings.
Some taxpayer money also could go toward rewriting the terms of existing loans so that the flood of foreclosures will ease to a more manageable trickle.
Last year, I had to take out a huge (for me) and exotic mortgage when I bought a house after returning to Los Angeles. My wife and I figured this was the best way to get our son enrolled in the public school we wanted him to attend even though we hadn't yet sold our home in San Francisco.
I knew going into the deal that I couldn't carry two mortgages for very long and that I'd have to get out of our new loan as quickly as possible. The initial payments weren't exorbitant, but the interest rate could (and almost certainly would) ratchet higher after three years.
