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Freddie, Fannie, taxes and you

Even if your mortgage isn't directly connected to Fannie Mae and Freddie Mac -- or you're not a homeowner at all -- you've probably been wondering and worrying about just what the latest rescue bail-out federal intervention will mean to you. talked with some financial experts who give federal officials good marks for "devising a plan that gives first priority to taxpayers and minimizes their potential cost."

Fannie_mae_logo_2 Thomas Stanton, attorney, author of two books on Fannie and Freddie and a lecturer at Johns Hopkins University, told that when it comes to who gets paid first and who gets hit last, taxpayers are above preferred shareholders. "The Treasury has really worried about protecting taxpayers," Stanton said, calling the approach "elegant."Freddie_mac_logo

Letting Fannie and Freddie fail and take the entire U.S. housing market down with them, say the experts, was not an option.

Bond fund manager Bill Gross, co-investment chief of Pimco, said he believes the bond market soon will "scream upwards in price and substantially lower in yield" in what could be the most dramatic move in the history of the mortgage market.

"I think the plan will likely make a profit for the taxpayer," Gross told

Not a bad deal for F&F either: As part of the takeover plan, Paulson had the IRS issue Notice 2008-76, which essentially allows the two government-sponsored enterprises to retain all of their net-operating losses (NOLs), despite a change of control of ownership.

Usually, notes, Section 382 of the Internal Revenue Code says that NOLs are severely limited when there is a change of control. The rule was designed to prevent acquiring companies from buying up targets just to gain access to their NOLs.

In essence, reports, Paulson changed tax law so that the two lenders aren't paying more in taxes to the government as a result of that same government becoming their controlling investor.

"I am not saying that the IRS ruling is a good thing, or a bad thing, it is just unusual," said tax expert Robert Willens. "Then again, this is a very unusual situation."


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