Local consumers feel financial giants’ pain

The bottom line:

Fannie Mae, Freddie Mac, AIG, Lehman Brothers and other titans of the U.S. financial system have either been bought out, bailed out or left to bankruptcy. Politicians in Washington, D.C., are debating a massive overhaul of the laws that govern these institutions. Clark County’s 100,000 homeowners couldn’t buy or sell without the nation’s mortgage giants. The county’s 26,474 state pension plan participants were investors in Lehman Brothers, including 4,673 retirees who on average receive $19,700 each year. And the 200,000 employed taxpayers in the county could be on the hook for $4,800 each — the potential cost per taxpayer of the proposed $700 billion economic bailout. Here’s what you need to know.

How do the bailouts affect my home-buying plans?

MONEY: Fannie Mae and Freddie Mac make money available to mortgage lenders. The bailout kept the mortgage market alive, according to the U.S. Treasury Department. Without the bailout, today’s soft housing market could have collapsed, according to Treasury Secretary Henry M. Paulson Jr.

QUALIFYING: The days of the zero-down mortgage loan are over, said Vancouver-based broker Matt Elerding. A 3 percent down payment is the minimum, and credit rating problems will cost more in interest.

RULES: “The mortgage guidelines are different from when you bought a home a year or two ago,” Elerding said. “And the rules keep changing.” Until you lock in a loan, expect for things to change, sometimes from day to day.

What does this mean for my state retirement plan?

The answer varies by program. If you’re not sure which plan you’re in, ask your human resources department or call the Washington state Department of Retirement Systems at 800-547-6657.

PLAN 1: There are no changes to this guaranteed benefit plan, whether you’re already retired or still in the work force, said Matt Smith, state actuary

PLAN 2: Benefits are guaranteed under this plan, but employee and employer contributions rise and fall to meet the funding needs. But the state plans to lower, rather than raise, the required employee contribution in 2009, Smith said.

PLAN 3: The guaranteed portion of this hybrid retirement plan is safe, but self-directed 401(k)-style investments may have lost value because of recent market turmoil, Smith said.

CONTRIBUTIONS: Employee contributions will generally go down or not change at all when adjusted next summer, because conservative choices have protected state retirement plans. It would take several years of market losses before employees would see a significant hike, Smith said. Employer contributions will generally go up.

What else do these bailouts mean for me?

SHORT-TERM: The bailouts freed up credit, allowing more people to buy homes and cars. But the uncertainty has also resulted in a nerve-wracking up-and-down ride for investors.

THE BAD: The Wall Street bailout could cost $700 billion or more, about $4,800 per working person in America, at a time when the U.S. deficit is already at an all-time high. Eventually, taxpayers will have to cover that cost. Some worry that the bailout will give too much power to a handful of government officials.

THE GOOD: Japan had a similar financial meltdown in the 1990s, but was too slow and conservative in its response, said David Nierenberg, president of Nierenberg Investment Management Co. in Camas. “Japan still has not recovered, and it’s been more than a decade.” Quick action by U.S. leaders could lead to much quicker recovery — which would benefit housing, jobs and investments for all of us.

What should I do now?

HOME BUYERS: If you’re shopping now, talk to a mortgage broker to be sure you qualify. If you’ll buy later, work on your credit score and save for a down payment.

STATE WORKERS AND RETIREES: Plans 1 and 2 are unaffected. If you’re in Plan 3, you may want to check how your self-directed investments have performed. A financial adviser can help you make a plan.

STAY CALM: “Don’t make panicky decisions,” Nierenberg said. “Make sure your spending is under control and remember your long-term goals.”

COURTNEY SHERWOOD covers business and the economy. Reach her at 360-735-4553 or courtney.sherwood@columbian.com.