Senate OKs bill providing mortgage assistance

And the taxpayer will have to pay for all of this and…

“If we’re lucky enough to help 400,000 households,” said Jared Bernstein, a senior economist at the Economic Policy Institute, “I’m afraid it’s a drop in the bucket.”
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Bush pledges to sign legislation to help Fannie, Freddie

Congress completed work Saturday on the government’s most sweeping response yet to the nation’s housing crisis, sending to President Bush a bill designed to help homeowners avoid foreclosure, spur home buying and prop up struggling mortgage giants Fannie Mae and Freddie Mac.

The Senate, in a rare weekend session, overwhelmingly approved the measure, 72-13, a reflection of the election-year jitters on Capitol Hill over the troubled economy. Bush has said he will sign the bill, which the House approved 272-152.

“Today, Congress did more than send a bill to the president – we sent a message to American families that help is on the way,” said Senate Banking Committee Chairman Chris Dodd, D-Conn., who helped write the legislation.

The measure’s critics attacked it as a bailout of speculators and irresponsible borrowers at potentially huge cost to taxpayers.

“This bill is fraught with too much risk and too little protection to the taxpayer,” said Sen. Christopher Bond, R-Mo., contending it would allow lenders to “dump their worst subprime mortgages” on the Federal Housing Administration.

GOP opposition

All the votes opposing the legislation were cast by Republicans.

Democrats, who control Congress, are looking at other proposals aimed at turning around the economy. These include debating in September a second election-year economic stimulus package that would provide $50 billion or more for bridge and road projects, home-heating assistance and other matters.

The bill passed Saturday, the American Housing Rescue and Foreclosure Prevention Act, contains a key provision that would allow the FHA to guarantee as much as $300 billion in lower-cost mortgages – provided that lenders accept significant losses.

The provision is expected to help at least 400,000 homeowners.

The bill would give the U.S. Treasury Department authority temporarily to increase its lending to Fannie Mae and Freddie Mac and buy their stock, a provision that Treasury Secretary Henry Paulson has called crucial to bolstering confidence in the companies and stabilizing housing finance markets.

The Congressional Budget Office recently estimated that there was a “probably better than 50 percent” chance that the federal bailout would not be needed. But if it is, it could cost taxpayers $25 billion, budget analysts said.

The measure includes about $15 billion in tax breaks, including a tax credit that is in effect an interest-free loan of as much as $7,500 for first-time home buyers.

It also funnels $4 billion to communities hard hit by foreclosures to buy and renovate abandoned properties, a provision that its supporters say would prevent blight and a decline in the value of neighborhood properties.

The measure gives states authority to issue an additional $11 billion in tax-exempt bonds to refinance troubled loans, provide loans to first-time home-buyers and finance low-income rental housing and millions for financial counseling.

It permanently would raise the cap on mortgages that Fannie Mae and Freddie Mac can buy and that the FHA can insure to $625,500 in high housing-cost markets. The bill also sets up a new regulator, the Federal Housing Finance Agency, to oversee the mortgage giants.

The two presumptive major-party presidential nominees, Republican Sen. John McCain and Democratic Sen. Barack Obama, each has expressed support for the measure but missed the vote. Obama was wrapping up his weeklong overseas trip; McCain was at his home in Arizona.

Foreclosures way up

The Senate action comes a day after a report that foreclosure filings nationally during the second quarter were up 121 percent from the same period a year ago.

The problem remains acute in California and Florida, which accounted for 16 of the top 20 metro foreclosure rates during the second quarter, with the Stockton and Riverside-San Bernardino areas Nos. 1 and 2, respectively, according to RealtyTrac.

Sen. Jim DeMint, R-S.C., forced the Saturday vote because Democrats refused to allow him a vote on a proposal to ban Fannie Mae and Freddie Mac from lobbying or making political donations to lawmakers.

“We can’t have the people who are supposed to watch over these organizations getting money from these organizations,” DeMint said. “At least if we’re going to ask the American taxpayer to be on the hook for billions, possibly trillions of dollars, let’s stop this.”

Even if the program works, its goals are modest compared with the scope of the problem, said Mark Zandi, chief economist for Moody’s Economy.com. He estimates that 5.5 million borrowers will default on loans by the end of 2009, with about half of those families losing their homes.

“If we’re lucky enough to help 400,000 households,” said Jared Bernstein, a senior economist at the Economic Policy Institute, “I’m afraid it’s a drop in the bucket.”

Chronicle news services contributed to this report.

Richard Simon, Los Angeles Times
Sunday, July 27, 2008

Source: San Francisco Chronicle

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