With limited fanfare, shortly after 7 a.m. yesterday President Bush signed the largest and most impacting housing legislation (HR 3221) since the depression era "New Deal" in the 1930's. This legislation is principally aimed to provide relief for 400,000 struggling homeowners while providing stability for troubled financial markets.
The Bush administration initially threatened to veto the bill as early as two weeks ago due to a 3.9 billion dollar provision that allows local governments to purchase and restore foreclosed & distressed properties, but recently decided to support the bill as early as last week, stressing that struggling homeowners needed aid as soon as possible. Additionally, congressional debate between lawmakers over this provision had stalled the legislative package for at least month, until additional legislation was added to provide timely support for the two Government Sponsored Enterprises (GSE's), Fannie Mae and Freddie Mac.
The House of Representatives passed the bill a week ago and the Senate approved the bill in a special Saturday session in an effort to quickly get the bill to the president's desk.
The main thrust of the legislation aims to spare over 400,000 homeowners locked in unaffordable loans by allowing them to get affordable mortgages that are secured by the Federal Housing Administration (FHA).
This bill would also provide the FHA with the ability to insure up to $300 billion dollars worth of mortgages, available to homeowners that meet certain guidelines. Lenders in turn are allowed to take a financial loss on these refinanced loans in exchange for collecting on the loan rather than face costly foreclosures.
Due to falling home values and rising defaults, a larger credit crunch has persisted in the housing markets. To combat this, the bill increases the size of home loans that GSE's can buy and the FHA can insure to a limit of $625,000. In addition, they could purchase and secure mortgages within certain areas that are up to 15% over the median house price.
This legislation also includes a plan to modernize the FHA and create a regulatory agency to oversee Fannie Mae and Freddie Mac. Specifically, it will now require lenders to disclose the maximum payment that a borrower could be liable for, and provides approximately 180 million in pre-foreclosure counseling.
As a result of the recent aid package added to the housing bill for Freddie Mac and Fannie Mae, until the end of 2009, the Treasury Department gains the authority to lend money to Fannie Mae and Freddie Mac or buy their stock should they need it, thus preventing any possibility of collapse for the two mortgage giants responsible for over half the nations mortgages.
Lastly, this bill provides tax relief in the form of $15 billion in tax cuts, and tax credits of up to $7,500 for first-time home buyers for homes purchased between April 9, 2008, and July 1, 2009.
This landmark legislation is now law, attacking the housing crisis from many directions by creating greater accessibility to safe credit, setting limits where needed to prevent another housing debacle, providing emergency liquidity as needed to keep the mortgage industry running, and providing the confidence needed for a potential sustained economic recovery.