July 24, 2008
By DAVID M. HERSZENHORN
WASHINGTON — The House approved far-reaching government assistance on Wednesday for the nation’s housing market, including broad authority for the Treasury Department to protect the nation’s two largest mortgage finance companies from collapse.
The measure also includes an aggressive plan to help hundreds of thousands of troubled borrowers avoid foreclosure by refinancing their mortgages with more affordable government-insured loans.
The White House, citing an urgent need to restore market confidence in the two mortgage giants, Fannie Mae and Freddie Mac, said President Bush would sign the measure despite his opposition to the inclusion of nearly $4 billion in grants for local governments to buy and refurbish foreclosed properties.
Mr. Bush’s support assures that the bill will become law after final passage by the Senate, possibly on Saturday. The House approved the bill 272 to 152, with just 45 Republicans joining 227 Democrats voting in favor.
The weak support among House Republicans was remarkable given the president’s position, and suggested an emerging split between Mr. Bush, who is nearing the end of his term, and lawmakers in the House, who are all up for re-election in November.
Republicans said they would not support a bill that puts taxpayer money at risk while potentially bailing out irresponsible borrowers and greedy lenders.
Lawmakers and experts described the legislation as a landmark shift in the government’s role in the housing market, extending a helping hand to both Wall Street and Main Street. They said it would rank in importance with the creation of the Home Owners’ Loan Corporation to prevent foreclosures in the 1930s as part of the New Deal, and legislation in 1989 responding to the savings and loan crisis.
“We are at a time of considerable turmoil in the private financial markets, and that is a traditional time when government support is needed and called upon,” said Thomas H. Stanton, an author and expert on the mortgage finance industry.
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee, said: “This is the most important piece of housing legislation in a generation.”
Mr. Dodd appeared at a news conference with Senator Richard C. Shelby of Alabama, the senior Republican on the committee. They said they expected the Senate to pass the bill with overwhelming support.
Representative Barney Frank, Democrat of Massachusetts and a primary author of the legislation, said troubled homeowners might get relief within days of Mr. Bush signing the bill, because lenders have long known details of the legislation and could move quickly to help borrowers refinance. “Many of these institutions know this is coming,” he said. “I hope they will be able to take advantage of it right away.”
But the legislation, much of which has been debated and fretted over on Capitol Hill for months, also leaves numerous questions unanswered. The biggest unknown is whether the measure will be adequate to slow the downward spiral of home prices and help the economy recover from what many analysts now expect to be a prolonged slowdown.
Perhaps most significantly, the legislation hardens the government’s long-implicit assurance that it would step in to rescue the two mortgage giants who together own or guarantee about $5.2 trillion of the nation’s $12 trillion in mortgages. Currently, Fannie Mae and Freddie Mac guarantee financing for about 80 percent of new mortgages.
To accommodate a potential rescue for Fannie Mae and Freddie Mac, the bill raises the national debt limit to $10.6 trillion, an increase of $800 billion.
The Treasury Department has said it hopes never to use the authority to spend unlimited taxpayer funds — perhaps hundreds of billions of dollars — to maintain the solvency of the mortgage giants because they are in sound financial condition. Still, shares in the two companies rose sharply on Wednesday in a sign of the market’s positive view of having a federal rescue plan in place.
The independent Congressional Budget Office said on Tuesday that the rescue plan for the mortgage finance companies should appear on the federal budget as a $25 billion charge in fiscal years 2009 and 2010, but officials conceded that this was only an estimate based on complicated probability calculations.
The budget office said the chances were better than even that a rescue would not be needed before the Treasury Department’s authority to orchestrate a bailout ends at the end of 2009, and the cost to taxpayers would be nothing. But it also said that there was a 5 percent chance that the mortgage giants could lose $100 billion or more, potentially costing taxpayers that much or more.
The bill authorizes the Federal Housing Administration to insure up to $300 billion in refinanced loans for homeowners at risk of foreclosure, aiming to help as many as 400,000 homeowners trade expensive adjustable-rate mortgages for more affordable 30-year fixed-rate loans. To participate, each borrower’s lender must first voluntarily agree to reduce the principal balance of the loan to about 85 percent of each home’s current value. The borrowers must demonstrate the ability to pay the new loan and must also pay a 1.5 percent annual insurance fee to protect the government from future defaults.
The bill creates a permanent affordable housing trust fund that will initially help pay for the mortgage refinancing plan and eventually sponsor the creation of rental housing for Americans too poor to buy homes.
The legislation provides some $15 billion in housing-related tax incentives, including a $7,500 tax credit for first-time home buyers who meet certain income qualifications. And it permanently increases the so-called conforming-loan limit, which typically qualifies mortgages for lower rates, to $625,500 in the nation’s most expensive housing markets.
The bill also grants authority for state and local housing agencies to issue $11 billion in tax-exempt bonds to refinance bad mortgages, calls for stricter oversight of mortgage brokers and sets new disclosure requirements to make loan terms more transparent.
Some experts, including Mr. Stanton, say the new regulator was not given enough authority.
Mr. Bush has long supported tighter regulation of the mortgage giants. But until Wednesday he had threatened to veto the bill over $3.9 billion in grants for local governments, a provision the White House regards as a giveaway.
Mr. Bush set aside those objections on the advice of the Treasury secretary, Henry M. Paulson Jr., who told Mr. Bush the overall package was necessary to help stabilize the troubled housing and credit markets, according to the White House press secretary, Dana Perino, who announced the switch Wednesday morning.
She said the gravity of the crisis, and the tight Congressional schedule resulting from the coming summer recess, left no option.
“The president would not have signed this bill if we had a lot of extra time on our hands,” Ms. Perino said. “We don’t.” She said Mr. Bush thought he could have won a veto fight with Congress, but he had concluded “a prolonged veto fight would not be good for the housing industry right now.”
Sheryl Gay Stolberg contributed reporting.
The measure also includes an aggressive plan to help hundreds of thousands of troubled borrowers avoid foreclosure by refinancing their mortgages with more affordable government-insured loans.
The White House, citing an urgent need to restore market confidence in the two mortgage giants, Fannie Mae and Freddie Mac, said President Bush would sign the measure despite his opposition to the inclusion of nearly $4 billion in grants for local governments to buy and refurbish foreclosed properties.
Mr. Bush’s support assures that the bill will become law after final passage by the Senate, possibly on Saturday. The House approved the bill 272 to 152, with just 45 Republicans joining 227 Democrats voting in favor.
The weak support among House Republicans was remarkable given the president’s position, and suggested an emerging split between Mr. Bush, who is nearing the end of his term, and lawmakers in the House, who are all up for re-election in November.
Republicans said they would not support a bill that puts taxpayer money at risk while potentially bailing out irresponsible borrowers and greedy lenders.
Lawmakers and experts described the legislation as a landmark shift in the government’s role in the housing market, extending a helping hand to both Wall Street and Main Street. They said it would rank in importance with the creation of the Home Owners’ Loan Corporation to prevent foreclosures in the 1930s as part of the New Deal, and legislation in 1989 responding to the savings and loan crisis.
“We are at a time of considerable turmoil in the private financial markets, and that is a traditional time when government support is needed and called upon,” said Thomas H. Stanton, an author and expert on the mortgage finance industry.
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee, said: “This is the most important piece of housing legislation in a generation.”
Mr. Dodd appeared at a news conference with Senator Richard C. Shelby of Alabama, the senior Republican on the committee. They said they expected the Senate to pass the bill with overwhelming support.
Representative Barney Frank, Democrat of Massachusetts and a primary author of the legislation, said troubled homeowners might get relief within days of Mr. Bush signing the bill, because lenders have long known details of the legislation and could move quickly to help borrowers refinance. “Many of these institutions know this is coming,” he said. “I hope they will be able to take advantage of it right away.”
But the legislation, much of which has been debated and fretted over on Capitol Hill for months, also leaves numerous questions unanswered. The biggest unknown is whether the measure will be adequate to slow the downward spiral of home prices and help the economy recover from what many analysts now expect to be a prolonged slowdown.
Perhaps most significantly, the legislation hardens the government’s long-implicit assurance that it would step in to rescue the two mortgage giants who together own or guarantee about $5.2 trillion of the nation’s $12 trillion in mortgages. Currently, Fannie Mae and Freddie Mac guarantee financing for about 80 percent of new mortgages.
To accommodate a potential rescue for Fannie Mae and Freddie Mac, the bill raises the national debt limit to $10.6 trillion, an increase of $800 billion.
The Treasury Department has said it hopes never to use the authority to spend unlimited taxpayer funds — perhaps hundreds of billions of dollars — to maintain the solvency of the mortgage giants because they are in sound financial condition. Still, shares in the two companies rose sharply on Wednesday in a sign of the market’s positive view of having a federal rescue plan in place.
The independent Congressional Budget Office said on Tuesday that the rescue plan for the mortgage finance companies should appear on the federal budget as a $25 billion charge in fiscal years 2009 and 2010, but officials conceded that this was only an estimate based on complicated probability calculations.
The budget office said the chances were better than even that a rescue would not be needed before the Treasury Department’s authority to orchestrate a bailout ends at the end of 2009, and the cost to taxpayers would be nothing. But it also said that there was a 5 percent chance that the mortgage giants could lose $100 billion or more, potentially costing taxpayers that much or more.
The bill authorizes the Federal Housing Administration to insure up to $300 billion in refinanced loans for homeowners at risk of foreclosure, aiming to help as many as 400,000 homeowners trade expensive adjustable-rate mortgages for more affordable 30-year fixed-rate loans. To participate, each borrower’s lender must first voluntarily agree to reduce the principal balance of the loan to about 85 percent of each home’s current value. The borrowers must demonstrate the ability to pay the new loan and must also pay a 1.5 percent annual insurance fee to protect the government from future defaults.
The bill creates a permanent affordable housing trust fund that will initially help pay for the mortgage refinancing plan and eventually sponsor the creation of rental housing for Americans too poor to buy homes.
The legislation provides some $15 billion in housing-related tax incentives, including a $7,500 tax credit for first-time home buyers who meet certain income qualifications. And it permanently increases the so-called conforming-loan limit, which typically qualifies mortgages for lower rates, to $625,500 in the nation’s most expensive housing markets.
The bill also grants authority for state and local housing agencies to issue $11 billion in tax-exempt bonds to refinance bad mortgages, calls for stricter oversight of mortgage brokers and sets new disclosure requirements to make loan terms more transparent.
Some experts, including Mr. Stanton, say the new regulator was not given enough authority.
Mr. Bush has long supported tighter regulation of the mortgage giants. But until Wednesday he had threatened to veto the bill over $3.9 billion in grants for local governments, a provision the White House regards as a giveaway.
Mr. Bush set aside those objections on the advice of the Treasury secretary, Henry M. Paulson Jr., who told Mr. Bush the overall package was necessary to help stabilize the troubled housing and credit markets, according to the White House press secretary, Dana Perino, who announced the switch Wednesday morning.
She said the gravity of the crisis, and the tight Congressional schedule resulting from the coming summer recess, left no option.
“The president would not have signed this bill if we had a lot of extra time on our hands,” Ms. Perino said. “We don’t.” She said Mr. Bush thought he could have won a veto fight with Congress, but he had concluded “a prolonged veto fight would not be good for the housing industry right now.”
Sheryl Gay Stolberg contributed reporting.
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