Somehow I don’t think you and I are going to get a “Thank You” card for bailing out the financial markets. And I've never been referred to as Joe Six-pack until recently, but I do know the way we average folk will be able to obtain financing will change dramatically.

According to Aaron VanTrojen of Geneva Financial in a recent ABC report, it means new rules and the death of the Option ARM.

The government bailout of the mortgage industry continues in an unprecedented takeover of Fannie Mae and Freddie Mac, running one of the world’s largest mortgage banking companies, while the government is in the throes of an extraordinary rescue of Wall Street. This sweeping intervention in the financial markets, the greatest since the Great Depression, is aimed at stemming the credit crisis roiling Wall Street and threatening the global markets, according to CNN Financial.

It’s all being sold to the public as a means of helping the homeowner. So how will you, as a homeowner, benefit? The initial announcement of the takeover of Fannie Mae and Freddie Mac did cause long term mortgage rates to drop; approximately .5% of a point and for those who could still qualify, 30-year fixed rates dropped to 5.375%, almost a five year low. Then rates shot up after the announced bailout with financial market fears of skyrocketing debt, causing a massive sell off of the 10 year T-Bill.

This tells us that lower interest rates may not be the solution. True, they can help revitalize the housing market, but without reducing the restrictions on lending guidelines, few consumers can qualify for those low rates. It make sense that the government should be cautious with making credit easier to obtain so this doesn’t happen all over again, but it also will need to take steps soon so the average citizen can purchase or refinance a home.

To stave off mortgage delinquencies, Fannie Mae has made the following guideline changes: Non-owner Occupied Financing will be reduced so that the maximum number of financed properties allowed will go from 10 to 4. Appraisers will have to use a six-month seasoning term for values on a refinance transaction. No more “stated income” mortgages – the type where no one calls banks or employers to verify what you are saying on your loan application -- but some borrowers may still qualify under reduced- income documentation programs. And lastly, commercial financing might come into play for financing more than 4 residential properties.

It comes as no surprise that the once-creatively used Option ARM mortgages (in which borrowers had the ability to choose payment options) will begin to melt down, since, especially in high cost areas, these loans allowed buyers to qualify based on the minimum payment for homes they traditionally could not qualify for.

While the Option ARM was aggressively sold to borrowers in 2005 & 2006, many consumers had no understanding of the mechanics of the mortgage. Others used it as a tool to purchase expensive property outside of their means, or multiple properties that they would otherwise not been able to purchase using traditional fixed-rate mortgages. What may surprise you, however, is that when used properly, the Option ARM has proved to be a fantastic financial tool (something you won’t hear the mainstream media talking about much, if at all). If you take the negative amortization payment option out of the picture, many of these borrowers are ahead of the curve since rates that have fallen as much as 2% over the past couple of years, lowering the amortized and interest-only payments significantly, allowing them additional freedom. If used responsibly, the oft-disrespected Option ARM (although discontinued by most banks) is still one of the best mortgage options in the market.

The bailout proposal opens the door for the federal government to buy the illiquid mortgages at deeply discounted prices. These are defined as mortgages that fall outside of Fannie and Freddie guidelines that are not performing, are in some state of delinquency, and/or have a higher value than the asset is worth.

As part of the proposal, the Bush administration wants Congress to raise the nation’s debt ceiling once again, to a staggering $11.315 trillion for the fiscal year of 2009. It is unclear as to whether or not the plan will work, and ultimately who will pay for it. Initially we, as taxpayers will likely be on the hook for the bailout. If the real estate market corrects, the government has the potential to sell the currently illiquid mortgages for a profit.

Will it work? No one can say. What we do know if that the Federal Government is now running the US mortgage industry.

Visit Dena Kouremetis' web site at www.realpropertymatters.com.