One Step Closer to a "Mortgage Rescue Bill"

Today, the U.S. House of Representatives passed H.R.322, the American Housing Rescue and Foreclosure Prevention Act of 2008, by a vote of 272 to 152.  Now the bill goes back to the Senate, where it is expected to pass quickly -- and President Bush now says he will not veto the bill.

Key provisions:

• Shoring up public confidence in Fannie Mae and Freddie Mac - By granting the Federal Reserve express authority to extend an unlimited line of credit to these two troubled mortgage market cornerstones for the next 18 months as well as the authority to buy their stock if necessary to stabilize housing finance markets, Congress hopes to stop the downward spiral in the U.S. residential mortgage sector.
• The pricetag for this new backstop authority is estimated by the Congressional Budget Office (CBO) to be $25 BILLION -- of course, that's pulling numbers out of a hat.  CBO says there's a 50% chance Freddie and Fannie won't need to be bailed out, in which case the number would be $0.  However, there's a 5% chance the number is $100 Billion -- according to CBO, but really, who knows, it could be more.
• Creates the Federal Housing Finance Authority (FHFA), a new independent federal regulator for these two GSEs and the Federal Home Loan Banks -- with the authority over capital, corporate governance (including executive compensation). operations, activities, and safety and soundness.  (This new agency will absorb the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board -- which are both abolished.)
• Requires the GSEs to provide affordable credit to the underserved markets of manufactured housing, housing preservation and rural housing; encourages and measures GSE home refinance loans to low income borrowers.  That's Community Reinvestment on steroids!
• Establishes new affordable housing programs, including a new Housing Trust Fund and a Capital Magnet Fund.
• Provides an increased role for the Federal Housing Administration (FHA), raising FHA loan limits up to $625,000 -- and puts a one-year moratorium on FHA risk-based pricing.  This likely means that FHA just won't guarantee loans at all for high risk borrowers or that it will charge all borrowers a higher interest rate since it can't charge a higher interest rate for more risky loans.  How is this a prudent lending standard????  In addition, the seller-funded Gift Downpayment Program is elminated. 
• Creates the "Hope for Homeowners" Program, enabling the Federal Housing Administration (FHA) to refinance mortgages of "at risk" borrowers -- up to $300 Billion in new 30-year fixed rate mortgages if lenders write down the loan balance to 90% of current appraised value.  Borrowers will pay a premium to FHA and agree to share profit on sale.  This program has been estimated to keep 325,000 to 400,000 families from losing their homes.
• Sets nationwide standards for a nationwide mortgage licensing and registration system for mortgage brokers and bank loan officers.  This addresses the problem demonstrated in the present crisis when just anyone could hang up a shingle and proclaim themselves a mortgage broker, accountable to no one.
• Provides $4 Billion in emergency assistance to states and cities to redevelop abandoned and foreclosed homes.  This provision was anathema to President Bush and precipitated a "battle of the press releases" between U.S. Representative Spencer Bachus, who is the ranking Republican member of the House Financial Services Committee, and the Committee Chairman Barney Frank.  See the House Financial Services website:  http://www.house.gov/apps/list/press/financialsvcs_dem/press071508.shtml

Link to House Financial Services Summary of HR 3221:  http://www.house.gov/apps/list/press/financialsvcs_dem/press072308.shtml

(ag) July 23, 2008, in Economy