U.S. Rep. Robert Latta said the Fannie Mae and Freddie Mac bailout will ultimately hurt taxpayers.

The Bush administration recently seized the troubled mortgage giants to help reverse a prolonged housing and credit crisis. Effectively, the federal government has become the nation’s mortgage lender.

“We’re looking at $200 billion that has to be invested by the taxpayers. We’ve got a major, major problem,” Latta said of the government’s pledge of a minimum of $200 billion to Fannie Mae and Freddie Mac. 

Latta said the big story is the foreign banks’ interest. Foreign nations threatened to stop buying Fannie Mae and Freddie Mac debt, which gave them power. The way Fannie and Freddie work is they borrow the money they use to make home loans. They then make money by loaning out at higher rates, but when people default on their mortgages, the system falls apart.

“They [foreign government] own so much,” Latta said “A total of $1.5 trillion.” China alone owned $376 billion in debt from Fannie and Freddie, he said.

Bonita Betts, mortgage broker from First Source Mortgage Company, said Fannie Mae and Freddie Mac are government-sponsored enterprises. The bailout is intended to make more funds available for potential and current homeowners.

“We’ve unfortunately allowed this [foreign debt] to happen,” Betts said. “It’s plain and simple. Whenever a corporation is weakened, it becomes vulnerable to a takeover; whether it’s foreign or domestic.”

“Right now we’ve got a $407 billion deficit for the year and now we keep piling things from Fannie and Freddie. We can’t be doing this,” Latta said. 

According to the Congressional Budget Office, last year’s deficit was $161 billion. The deficit rose 1.2 percent of Gross Domestic Product (GDP) in 2007. This year, it is expected to rise 2.9 percent, GDP.

Anyone who’s looking at buying homes will be hurt by the seizure of Fannie and Freddie, Betts said.

“All the changes they have made, the tightening, that’s where it gets hurtful — to any prospective homebuyers and anyone looking to refinance,” she said. 

According to a May 5 BrokerUniverse Newsletter, in a Federal Reserve Board survey, banks have continued to “tighten their underwriting standards on prime mortgages and home equity lines of credit even as demand for these loan products has weakened. About 60 percent of senior loan officers indicated they had tightened their lending standards on prime mortgages over the past three months.”

“The housing crisis is going to continue. I don’t know if we have learned our lesson yet,” Betts said. “I recently read that, ‘The minimum household income needed to purchase an entry-level home at $329,120 in California stood at $62,870.’

“Decrease [in buying homes] has been seen for a while,” she said. “You can’t purchase a home as easily as you once could.  We are getting back to traditional underwriting, which is beneficial to the market.” 

But Betts said there is a silver lining. 

“Hopefully, what happens is they’ll be able to eliminate most of the pricing adjustments,” she said.

Toledo Free Press Special Sections Editor Brandi Barhite contributed to this report.