[Update: The Federal Housing Finance Agency discussed below was created by Title III of Public Law 110-289, the Foreclosure Prevention Act of 2008. This legislation is not linked to H.R. 1427 in the Library of Congress' legislative database so I missed the fact that a version of the bill had passed. I sometimes point out that the federal government is a jack of all trades and master of none. The same criticism applies to me when I report on areas of federal policy that I'm not intimate with. Apologies for missing this.]

Lending giants Fannie Mae and Freddie Mac have been rotting from the inside out for several years now. While the risk to taxpayers has been known for quite some time in Washington, D.C. policy circles, the politics didn’t line up to do anything about it.

So now – hopefully to avert real financial catastrophe – the government has taken over Fannie Mae and Freddie Mac, placing them under the control of conservators.

This San Francisco Chronicle article does a decent job of explaining things. It reports that taxpayers could be on the hook for $25 billion, though some guess it might go as high as $50 or $100 billion. (That’s about $240, $480, or $960 per U.S. family, if the spending were all to occur in the coming fiscal year.)

That’s not to say that people haven’t tried to do something about this before now. Back in March of last year, Rep. Barney Frank (D-MA), the Chairman of the House Financial Services Committee introduced H.R. 1427, The Federal Housing Finance Reform Act of 2007. It passed the House in May of last year, but languished in the Senate.

At a cost of about $55 per U.S. family, H.R. 1427 would have created a new regulatory oversight body for Fannie and Freddie plus tougher standards and reporting requirements for them. Nobody can be sure whether that would have averted the most recent events and the far higher costs to taxpayers, but it might have.

The Chron article reports something important: “The companies will be forced to stop lobbying efforts.” Fannie and Freddie have been legendary for years with their lobbying to keep financial risk with the taxpayer while funneling the profits to owners. Private risk and private profits is A-OK, but public risk and private profits – no damn way. Hopefully, this brings it all to an end.

We’ll follow the goings-on related to this in Congress, which returns to work this week. In the meantime, here’s the current vote on H.R. 1427, The Federal Housing Finance Reform Act of 2007. Click to vote, comment, learn more, or edit the wiki article about the bill.