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Housing Bill Approved

Senate passes H.R. 3221

July 26, 2008

By PATRICK CROWLEY


photo of Patrick Crowley

Landmark housing legislation has made it through both houses of Congress and is now on its way to the president's desk.

Responding to an epic housing crisis and faced with a potential loss of confidence in Fannie Mae and Freddie Mac, Congress has enacted a sweeping legislative package that will bring help to the nation's ailing housing market.

The U.S. Senate, in a rare Saturday vote, approved H.R. 3221 today on a vote of 72-13; the House passed the bill 272-152 on Thursday.

President Bush, who had originally threatened to veto the bill, has now promised to sign the legislation.

The bill provides new government authority over Fannie and Freddie, which own or guarantee $5.2 trillion of the nation's $12 trillion in mortgages, and promises to prevent the collapse of the government sponsored enterprises from collapsing.

Considering the current state of the real estate, mortgage and credit markets," Mortgage Bankers Association chairman Kiernan Quinn said in a statement, "I can confidently say this is the most important piece of housing-related legislation that we have seen in more than a generation."

The law includes a provision that would enable the Treasury Department to pump cash into Fannie and Freddie. But the GSE's will be more tightly controlled under the authority of a newly created regulator.

"We are in the midst of the most serious economic crisis to face our nation in many years," bill sponsor Sen. Chris Dodd, the Connecticut Democrat and chairman of the Senate banking committee, said in a floor-speech. "This bill is going to make a difference almost immediately."

Two Senators who did not vote, presumed Democratic presidential candidate Barack Obama and his Republican opponent John McCain, were out of town campaigning.

James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight which regulates the GSE's, said the new regulator that will replace OFHEO will have "the tools necessary to ensure the soundness of the GSEs."

"In this troubled housing market," Lockhart said, "it is critical to get this new regular up and running," Lockhart said.

Fannie Mae CEO Daniel H. Mudd said in a statement that the "landmark housing legislation ... creates a strong regulator" that should "reinforce confidence that the GSE's will be able to serve the housing finance system now and in the future."

The legislation is designed to help as many as 400,000 borrowers by allowing them to re-finance high-cost adjustable-rate mortgages with 30-year-fixed loans. Under the bill, the Federal Housing Administration is permitted to insure $300 billion in new loans for the massive refinance program.

To take advantage of the program borrowers must show their ability to replay the loan and pay a 1.5 percent annual insurance fee to protect the government from defaults while lenders must agree to reduce the principal loan balance to 85 percent of property value.

Other provisions include raising the conforming-loan limit to $625,000; giving first time home buyers who purchase a home between April 9, 2008, and July 1, 2009, a tax credit of up to $7,500; and providing $3.9 billion for communities hit hardest by the housing crisis to buy foreclosed and vacant properties.

Key members of Congress from both sides of the aisle hailed the bill's passage.

"The bill ... will represent the most far-reaching reform of our nation's federal housing finance system in a generation," House Speaker Nancy Pelosi, a California Democrat, said in a statement.

Sen. Richard Shelby, an Alabama Republican and ranking member on the Senate banking committee, said in a statement that the bill "will provide needed stability to our housing markets and the economy."

Several industry associations and groups also praised the omnibus legislation, among them the The American Bankers Association, National Association of Home Builders, U.S. Chamber of Commerce, American Financial Services Association, Consumer Bankers Association and National Association of Realtors.

But the bill also has its detractors.

GOP Congressman Geoff Davis of Kentucky, who joined the majority of House Republicans in opposing the bill, said in a statement that Congress "abdicated its responsibility to be good stewards of the taxpayers' hard-earned money."

"The bill bails out irresponsible lenders," Davis said, echoing the comments of other opponents, "while at the same time putting tens of billions of taxpayer dollars at risk and punishing the responsible homeowners and renters who lived within their means and are scraping pennies to get by."

Fellow Kentucky Republican Sen. Jim Bunning said the bill "smacks of socialism."

A coalition of taxpayers' groups that included the Club For Growth, Americans for Tax Reform, National Taxpayers Union and Citizens Against Government Waste, issued a statement opposing the bill.

The bill "creates a new $300 billion facility that allows mortgage lenders to cherry-pick their worst performing loans and roll them into FHA, shifting 100 percent of the loan liability to the taxpayer," the coalition said.

Anne Canfield, executive director of the Consumer Mortgage Coalition, raised concerns about the changes to the FHA program.

The bill delays implementation of the FHA Risk-Based MIP for one year. But Canfield said since nearly every FHA lender has already changed their systems and implemented the new program "it will be nearly impossible to reverse it."

"It is unlikely that many lenders simply will not do FHA loans for one year," Canfield said in a statement. "At a minimum, it will be four to five months before they can do FHA loans."

Canfield estimates that HUD will have to put off up to 75,000 at-risk borrowers seeking to refinance their loans.

"This is a time when everyone hoped to use the FHA program to refinance distressed borrowers," she said.


Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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