FannieMae and FreddieMac back about half of the country's $12 trillion in mortgages, yet failed to anticipate all the foreclosures in the real estate market. FannieMae and FreddieMac, also known as FNMA and FHLMC, serve a government mission to support housing, and were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in line in any claims. The two companies operate in the secondary mortgage market, buying debt that primary lenders don't want on their balance sheets. The Treasury took $1 billion in preferred senior stock in each company, but its equity stake could reach as much as $100 billion in each. A US government takeover of FNMA and FHLMC by the US Treasury should give the firms a promise of fresh loans and capital. Higher capital requirements in these institutions should have helped them avoid collapse. One of the main goals of the Treasury will include changes in senior management and reduce the size of both organizations. In 15 months, FNMA and FHLMC must reduce the mortgages they hold by 10 percent, until they hit $250 billion. The bailout brought a heavy dose of skepticism, with many on Wall Street. The government bond market suffers as investors reason the bailout would increase the amount of debt needed to fund the government's obligations. The housing downturn is at the heart of the problems that our economy is facing right now. Until the majority of it is behind us we're going to continue to have stress on the economy and financial market. Estimates of exactly how much of a burden the bailout would be for taxpayers are not going to be known until the housing market and the economy stabilize. The good news: lower mortgage rates. This should notably tighten spreads between Treasury bonds and mortgage backed securities. Mortgage rates could fall by a half-point and bring rates down to about 6 percent. The bad news: this will not solve the housing crises. This does not address the increase in delinquencies and other issues, such as global slowdown.

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