By Susan A. Baird
PBN Web Editor
WASHINGTON – A landmark housing measure that cleared Congress this weekend will offer assistance to homeowners facing foreclosure, as well as ailing mortgage giants Fannie Mae and Freddie Mac.
“This legislation will help stabilize the housing market and begin to revive our economy,” U.S. Sen. Jack Reed, a senior member of the Senate Banking Committee and author of several provisions of the bill, said in a statement after the measure cleared the Senate on Saturday.
President George W. Bush is expected to sign the measure in mid-week, a White House spokesman told Bloomberg News.
“The housing crisis is perhaps the most significant economic issue that we face, and this bill will go a long way toward bringing stability and confidence back to the markets,” Reed said in announcing the bill’s passage.
The measure will leave taxpayers holding the tab for “billions and billions of dollars,” U.S. Rep. John Boehner, R-Ohio, said during last week’s House debate.
But it drew praise from analysts. “This legislation has indicated to investors that Fannie and Freddie are not implicitly guaranteed, not explicitly guaranteed, but we’re close to that point,” Bill Gross, who oversees the $128 billion Total Return Fund at Pacific Investment Management Co. (Pimco) in Newport Beach, Calif., told Bloomberg News. “We like it.”
The Federal Housing and Economic Recovery Act of 2008 will establish an independent agency to regulate Fannie Mae and Freddie Mac. The two companies – government-sponsored enterprises (GSEs) that were established to expand homeowner access to credit by buying and repackaging mortgage debt – now own nearly half the nation’s $12 trillion in outstanding residential mortgages.
It will authorize the U.S. Treasury to buy shares in the companies, for the first time, a provision sought by Treasury Secretary Henry M. Paulson Jr. to help stabilize the GSEs.
For consumers, it will enable certain homeowners at risk of foreclosure to refinance into 30-year, fixed-rate mortgages.
It will provide tax credits for first-time homebuyers to help trim the nation’s stock of unsold homes. At the current pace of sales, the U.S. housing market had a 10-month supply of new homes at the end of June, down from a record 11.2-month supply at the end of March, the U.S. Census Bureau said last week. The measure includes assistance for returning soldiers.
Additional tax credits, also aimed at stimulating the economy, will benefit homeowners and homebuilders.
The measure also allocates nearly $4 billion in new Community Development Block Grant (CDBG) funds to help communities with high foreclosure rates buy and rehabilitate their foreclosed properties.
In addition, the provisions penned by Reed will:
• Require that Fannie Mae and Freddie Mac set aside about $500 million to $900 million per year – less than 1 percent of the unpaid principal of each new loan the two GSEs purchase – to establish two funds to support affordable housing: A national affordable-housing trust fund, long sought by Reed; and a new Capital Magnet Fund, to be administered by the Treasury secretary. The trust fund will support the construction, preservation and rehabilitation of rental housing for low-income families. The Magnet Fund will be used to create and support revolving loan funds, risk-sharing loan programs loan-loss reserves and other programs aimed at increasing investment in low-income housing.
• Require that the GSEs purchases from loan originators include a higher share of mortgages made to qualified low-income buyers. The aim is to improve such families’ access to safer, conventional loans.
• Expand homeowner access to financial counseling services offered by the U.S. Department of Housing and Urban Development (HUD) to ensure that more low- to moderate-income families “get the advice and assistance they need to keep their homes,” Reed said.
• Expand truth-in-lending requirements to help ensure that lenders provide consumers with timely information about the terms of their new mortgage, loan refinancing or home-equity line of credit.
• Lift the Federal Housing Administration’s current cap on reverse mortgages for the elderly, allowing the FHA to insure such reverse mortgages for as much as the full value of a home.
• Allot $25 million per year in FHA savings to the housing agency’s technology-improvement initiative.
“For the first time in over a generation,” Reed said, “we are passing legislation to update, modernize, and strengthen the institutions that undergird both our mortgage and housing markets. I believe it will help stabilize our economy by ensuring access to decent, safe and affordable housing for millions of American families.”
Additional information – including a summary of the Federal Housing Finance Regulatory Reform Act of 2008 – is available from the Senate Banking Committee at banking.senate.gov.
