Taxpayers take on trillions in risk in Fannie, Freddie takeover

WASHINGTON -- The unprecedented federal takeover of mortgage giants Freddie Mac and Fannie Mae announced on Sunday is a bold attempt to stabilize financial markets and restore the faltering housing market, but it thrusts trillions of dollars of risk directly onto taxpayers' shoulders.

"You can call it a bailout, you can call it a safety net or you can call it a rescue package, but the bottom line is the American taxpayer is left footing the bill," says Richard Yamarone, director of economic research at Argus Research.

If the plan settles the bond market as government officials hope, borrowers may find mortgages at slightly lower rates. In taking over the companies, the government ousted their CEOs; otherwise, work continues as normal.

Though the companies haven't been at imminent risk of collapse, deep losses from the housing meltdown have raised concerns from investors around the world about their ability to meet financial commitments.

"I have determined that the companies cannot continue to operate safely and soundly and fulfill their critical public missions without significant action to address our concerns," Lockhart said.

Freddie Mac and Fannie Mae combined own or guarantee $5.4 trillion in outstanding mortgage debt. The government's decision to place both agencies into a conservatorship — in essence, taking on responsibility for that debt by wresting control from the corporations — is an historic move.

It is still uncertain how much capital the companies may need from the government. What that means to taxpayers ultimately depends on what happens with the faltering housing market. To the extent homeowners continue to make timely mortgage payments, pressure on the government is lessened. Continued foreclosures and troubles in the mortgage market could run up an expensive tab.

The Mortgage Bankers Association reported Friday that more than 4 million homeowners, or 9% of those with mortgages, were delinquent by at least one payment or in foreclosure at the end of June. It's the highest rate ever, the MBA says.