On a Sunday morning, the U.S. Treasury stepped in and took control of two huge mortgage institutions, Fannie Mae and Freddie Mac, by placing them in government conservatorship. These two institutions are central to the financing of most mortgages in this country. They are not household names, but combined they own or guarantee over $5 trillion in home loans, or half of the nation's mortgages.

Fannie Mae and Freddie Mac are charter organizations created by the government in 1938 and 1970 respectively to provide money to banks and mortgage lenders so people can buy homes at low interest rates.

With the collapse of the housing market in many part of the country, these organizations have been hit with staggering losses on the loans they held or sold to other investors in the form of mortgage backed securities. Just last year Fannie and Freddie lost a staggering $14 billion.

Double-edge sword
The government really had no choice but to step in and prop up these two giant institutions in order to try and stabilize the housing market. So the feds are investing up to $200 billion to restore confidence in the financial markets. Had the feds not done this, there would have been a great deal of turmoil leading to higher rates on mortgages and more bank failures. What would have been catastrophic is if they went belly-up.

Now the U.S. government, as a result, is in effect standing behind the debt issued by them. In essence, they have become the nation's mortgage lender.

As you can imagine from the size of these institutions, they are central to the mortgage market. In simple terms, when a bank makes a loan, they will sell the loan to them, get their money back, make another loan and sell it to them. This process is repeated over and over. Fannie and Freddie will either keep these loans on their books or package them as mortgage-backed securities and have Wall Street sell them to large institutional investors both in the U.S. and abroad.

Limited alternatives
When the sub-prime mortgage mess started to unwind last year and foreclosures continued to mount, these institutions found it more difficult to get investors to buy their mortgage-backed securities. The actions caused a liquidity problem, which in turn caused them to buy less mortgages from banks. That made it harder for your average home buyer to get a mortgage from their local bank.

The government intervention was a huge sigh of relief for many people in the housing industry. With the government backing these mortgages, it should help alleviate pressure off the mortgage market. Wall Street reacted very positively in part, because they have also been hammered with losses from these loans they sold their clients. A short time ago Bear Stearns was sold to a bank at a fire-sale price. And now another venerable firm is on the block. While this will take some heat off Wall Street, they are far from done dealing with their financial problems including massive lawsuits.

This takeover is going to take years to work out, and it is really unknown how much money the government will have to pour into Fannie and Freddie to get them back on their financial feet. The next elected president will be dealing with this and maybe his predecessor too. Eventually, the government hopes to recoup their massive investment by selling off stock in these companies to the public once they are profitable again.

So how does this affect you? It is going to make it a little easier to get a loan, but don't count on getting one of those no-doc, no-income loans tomorrow. Those loans, which were at the root of today's problems, are gone for a while. But the infusion of cash into Fannie and Freddie will allow banks to produce more loans again. Also, the guarantee of these loans now by Uncle Sam will get more investors to buy mortgages without the fear of getting burned. An immediate positive effect is that the 30-year fixed-rate mortgage rate dropped to 5.78 percent from 5.93 percent the week of the announcement.

Steven Hyman is the broker and owner of Century 21 Sunset Properties Half Moon Bay, CA.