Monday, July 28, 2008

Bush to Sign Landmark Housing Bill

In a rare Saturday session, the U.S. Senate with bipartisan support passed a landmark housing bill that will offer up to $300 billion in loans for troubled homeowners and establish a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac. The U.S. House of Representatives had passed the bill on Wednesday not long after President Bush changed his mind and decided not to veto the bill if it came to his desk.

The two main objectives of the bill were to offer affordable government guaranteed mortgages to homeowners that were at risk for foreclosure and to help Fannie Mae (FNM) and Freedie Mac (FRE) with a rescue plan if needed and a better regulator of the two companies.

The specifics of the bill were:

  • Alter the FHA Role - allow the FHA to over the new $300 billion in mortgages to those that need them if necessary. The estimate is that no more than $75 billion is really needed to help approximately 325,000 homeowners
  • Establish a stronger regulator for Fannie Mae and Freddie Mac - keep the two companies in check
  • Increase the limits on conforming loans - permanently increase the limits from $417,000 to $625,500
  • Home-Buyer Credit/Loan - a weird one here with a first time home-buyer receiving a credit for 10% of the purchase price, but no more than $7,500. What makes it weird is it must be paid back over 15 years in installments. It ends up being a no-interest loan basically.
  • Remove Down Payment Assistance for FHA loans/raise percentage - sellers had been able to help with the down payment on FHA loans by increasing the price to cover the down payment. This will no longer be allowed. Also, the old standard of 3% down payments on FHA loans will be increased to 3.5%.
  • Affordable Housing Trust Fund - A fund to promote affordable housing created by contributions from Fannie Mae and Freddie Mac.
  • Give grants to states to buy foreclosed properties - grant $4 billion to states to buy up and rehabilitate foreclosed properties. The funding had been opposed by most republicans and the White House which had said it would benefit lenders and not homeowners. This one provision almost held up the entire bill.
Most people credit Treasury Secretary Henry Paulson for getting the bill through Congress and The White House. It was Paulson that went to Congress asking for a "blank check" for the Treasury to come to the aid Fannie Mae and Freddie Mac if needed. The bill now includes provisions that let Treasury over the next 18 months offer Fannie Mae and Freddie Mac an unlimited line of credit and the authority to buy stock in the companies.

The Congressional Budget Office (CBO) estimated that there is less than a 50% chance that the Treasury Department would need to come to the aid of either company.

Source -

No comments: