Will the government own something tangible that has any value?

In the case of Freddie and Fannie the government has essentially taken over the ownership and management of these companies. They have essentially been nationalized. The have extended a huge line of credit to both companies to assure they can continue to perform their role in guaranteeing about half the home mortgage loans made in the U.S. Without Freddie and Fannie, the home construction and re-sale market would come to an almost complete halt. (That would include The Villages, by the way.) The interest rate on the line is very high--10% as I recall. And I think the Feds could ultimately own both companies if they default on the lines of credit. But if they default, how much do you think the value of the equity might be? Your guess is as good as mine, but it's nowhere near the amount that the Feds would have loaned to the companies.

The deal with Lehman and AIG is essentially the same except the interest rate is 11% and the Feds would own 80% of the companies if they default on the loans. Again, the two companies would have to survive and become profitable in order for the Feds to get the money back that they injected in the bail out.

Will they own paper or actual homes? Will they be collecting mortgage payments?

I think the answer is yes the government could wind up owning something tangible--the common stock of Lehman and AIG. (The U.S, government already "owns" Freddie and Fannie, having nationalized them within the last two weeks.) They won't own titles to homes, nor will they be collecting mortgage payments. For the most part, the mortgages have been sold and packaged as the underlying assets for bonds called "mortgage-backed securities". There is always a bank or another financial institution that collects the payments from homeowners on behalf of the issuer of the securities. If homeowners default, it is that agent that forecloses on behalf of the bond issuer. What it boils down to is that everyone in this process is going to be paid fees to perform these functions and it is very doubtful that there will be much left over for the government at the end of the line.

The "of value" part of your question depends on whether the companies pull themselves up by their bootstraps and return to financial stability and profitability. If they don't, what the government owns will be worth zippo.

If so, does that necessarily mean some return will trickle back into the government coffers?

Yes, that's a possibility. As Bucco pointed out, after a number of years and after all was said and done, the government actually made a little money on their idea call the Resolution Trust, which was created to bail out the S&L's back in the late '80's. What they got back was essentially what they put into the Trust, with little if any return on that investment.

One big difference is that almost all of the assets which were foreclosed on by either the S&L's or Resolution Trust itself were commercial buildings or developable land. Those were pretty clean transactions and assets. The Trust took over the defaulted loans made by the failed S&L's and either tried to collect on the loans or foreclosed on the underlying property and then sold it for as much as they could get for it. The commercial property had real value once it was sold or leased up and a verifiable income stream could be demonstrated.

The situation with Freddie, Fannie and particularly Lehman and AIG is decidedly different. Yes, there are a combination of defaulted home mortgage loans and foreclosed property that the government would wind up owning as the result of their control of Freddie and Fannie. But the cost of foreclosing and actually gaining control of the individual homes might exceed their value before all is said and done. The assets of Lehman and AIG are decidedly more complicated. They are heavily tilted towards counterparty expectations in some very, very complicated finacial transactions involving difficult to understand derivatives, interest rate and aset swaps and the like. Often the counterparties to these transactions are foreign firms or companies that might have already gone belly up. To even understand the chances that the government would get anything back from their bailout of Lehman and AIG is almost too difficult to understand. My guess is that it will take years for even the government to understand what assets they might own if they ever had to take over either of these two companies. I'd almost go so far as to say that if Lehman and AIG don't survive on their own, the government bailout injection will be a complete writeoff.

What's really scary is that no one really has any idea whether the amount of the current bailouts will be enough. Barney Frank said in an interview today, "...this could be just the beginning."

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In the current cases, and in my opinion (after having been a banker involved in these types of deals for almost 25 years), in the case of the currently proposed bailouts, I believe that the trillion dollars plus or minus that the U.S. government will inject in various bailouts should essentially be considered the cost of stabilizing the worldwide financial markets in the fall of 2008. Personally, I highly doubt that the government will get any of the bailout money back. In the fullness of time many of the principals in the bailouts will be interviewed publicly. I will be very surprised if even one of them projects that the government will get any meaningful amount of the bailout money back.