How will mortgage bailout affect us?

So what does the federal takeover of two mortgage finance giants mean to consumers?

Mortgage rates may fall a bit initially but probably not enough to halt the decline in home prices anytime soon. Some delinquent borrowers may have a better shot at modifying their loans and ending up with lower fixed payments. And the rules on new mortgages could slightly change.

Oh, and the federal government will help pay for it all, using your tax money.

These themes emerged over the weekend as mortgage specialists wrinkled their foreheads to determine what the federal bailout of the mortgage finance giants Fannie Mae and Freddie Mac will mean for consumers. They cautioned, however, that the unprecedented nature of the rescue makes it hard to know all of the ramifications immediately.

So first, what happened here, and why? In order to provide capital to banks that lend money to aspiring homeowners, Fannie and Freddie need to be able to sell the mortgages, packaged as securities, to investors around the world once the two companies have bought the loans from the banks.

All this worked fine until foreign investors got nervous about the housing market and the uncertainty over how a theoretical federal takeover might affect their holdings. When concerns emerged about the viability of Fannie and Freddie, the government thought it had no choice but to step in and take over.

Here's what could happen next:

If you already have a fixed-rate mortgage, nothing will change, except perhaps for a rising feeling of righteous indignation that you as a taxpayer are footing the bill for the mistakes of borrowers who got in over their heads and the lenders who let them.

If you are thinking of buying a home or refinancing a mortgage, the emerging consensus is that the government takeover will help stabilize rates. They might even fall a quarter of a percentage point or so, now that the government has stepped in to make their backing of Fannie and Freddie more explicit, said Kevin Iverson, who has been in the mortgage business for 30 years.

John A. Courson, chief operating officer of the Mortgage Bankers Association, a trade group, also pointed with relief to the statement by Treasury Secretary Henry M. Paulson Jr. on Sunday morning that Fannie and Freddie would examine the fees they charge banks for loan-securitization services "with an eye toward mortgage affordability."

Any reduction in those fees, Courson said, could help bring mortgage rates down a bit if the banks pass on the lower costs to consumers.

Home prices

Rates certainly matter in persuading people on the sidelines to step in and start shopping for a home, so any stabilization there can only help.