House Passes Housing Bill
From Homescape
written by Amy Le on Thursday, July 24, 8:54AM
While it wouldn’t be the first time President George Bush backpedaled on his position on a hotly contested political issue, Democrats in Congress this time around are welcoming his change of heart.
The Associated Press reported that “President Bush dropped his opposition Wednesday to legislation aiming to calm the chaotic housing market despite his objections to a $3.9 billion provision.” Bush’s decision helped speed the bill through passage in the House on Wednesday.
Under the bill, the government would help struggling homeowners get new, cheaper loans and would tap into taxpayer coffers to help bail out troubled mortgage giants Fannie Mae and Freddie Mac.
Fannie and Freddie borrow money in the bond markets to buy mortgages from lenders. They’re unusual entities, private companies traded on the stock market, while operating as government-sponsored enterprises, or GSEs, with an implicit guarantee of backing by the federal government.
Higher rates expected
Government sponsorship allows Fannie and Freddie to borrow at very low interest rates. But the housing collapse and a skyrocketing foreclosure rate have undermined the financial markets’ confidence in the two companies that underwrite half the nation’s mortgages. The result will be higher mortgage interest rates, according to members of the Federal Housing Finance Board.
According to National Public Radio, Treasury Secretary Henry Paulson said the measure would allow Fannie and Freddie to borrow from the Federal Reserve’s discount lending window if they need to. “The Treasury Department said it would also ask Congress for permission to buy shares of the companies’ stock (this would involve using tax payer dollars),” Paulson said. “It also increased the line of credit available to them. The message to investors was that the companies have all the money they need and aren’t going to collapse anytime soon, so they shouldn't be afraid to buy their securities.”
The AP also reported that “The Bush administration and lawmakers in both parties teamed to negotiate the measure, which pairs Democrats’ top priorities — federal help for homeowners facing foreclosure and $3.9 billion for neighborhoods hit hardest by the housing crisis — with Republicans’ goal of reining in mortgage giants Fannie Mae and Freddie Mac, while reassuring financial markets of their stability.”
Bush had fervently objected to the $3.9 billion provision in the measure up until Wednesday, saying that it was aimed at helping bankers and lenders, not homeowners who are in trouble. But with nation’s weakening economy and the housing markets mounting financial troubles, it may have finally dawned on Bush that now may not be a good time to pick a veto fight. The housing rescue bill, which is expected to total a whopping $25 billion, has strong opposition from the congressional Republicans.
Many Republicans call the legislation a handout for irresponsible homeowners and unscrupulous lenders. At a closed-door meeting Wednesday morning, House Republicans denounced the plan, although it’s clear they didn't have enough votes to prevent it from becoming law, the AP reported.
The legislation has been widely praised by real estate industry groups, but many economists have raised doubts about its real-world impact for consumers.
Homeowner benefits
The bill’s key provisions will:
• Allow homeowners, who are trapped in mortgages they can’t afford on homes with decreased value, avoid foreclosure by refinancing into more affordable fixed-rate mortgages backed by the Federal Housing Administration (FHA).
• Include $15 million in housing tax breaks, including a credit of up to $7,500 for first-time home buyers who bought homes between April 9, 2008 and July 1, 2009. The full amount of the credit is only available for individuals with incomes under $75,000 or couples earning less than $150,000.
• Create a new regulator with tighter controls for Fannie and Freddie and modernizes the FHA.
• Set a cap of $625,000 on the loans that Fannie and Freddie may buy and the FHA may insure. It will allow both companies to buy back mortgages up to 15 percent above the median home price in certain areas.
Do you think the housing bill will solve the housing market's problems?
Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com.
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