US Approves Mortgage Relief for 400,000
By Julie Hirschfeld Davis
Hundreds of billions of dollars made available in package called the most significant housing aid in decades
Congress approved mortgage relief for 400,000 struggling homeowners as part of an election-year housing plan that also aims to calm jittery financial markets and bolster the sagging US economy. President George Bush said he would sign the Bill promptly, despite reservations.
The measure, regarded as the most significant housing legislation in decades, lets homeowners who cannot afford their mortgage payments refinance into more affordable government-backed loans rather than losing their homes. It offers a temporary financial lifeline to troubled mortgage companies Fannie Mae and Freddie Mac – pillars of the home-loan market whose losses have sparked investor fears – and tightens controls over the two government-sponsored businesses.
What began as a showdown between the White House and the Democratic-led Congress over how far the government should go in rescuing homeowners evolved into a bipartisan effort that could be the last such compromise before Mr Bush leaves office in January. In a rare Saturday session, the Senate voted 72-13 to send the Bill to the President; the House passed it on Wednesday.
The legislation takes several approaches to curing the ailing housing market. It aims to spare an estimated 400,000 debt-strapped homeowners, many of whom owe more than their houses are worth, from foreclosure by allowing them to get more affordable mortgages backed by the Federal Housing Administration. The FHA could insure $300bn (150bn) in such mortgages, which would be available to homeowners who showed they could afford a new loan. Banks would first have to agree to take a large loss on the existing loans in exchange for avoiding an often-costly foreclosure.
The plan is also designed to relieve a broader credit crunch that has taken hold because of rising defaults and falling home values. And the measure tries to stop blight in areas hardest hit by the housing crisis, where waves of foreclosures have left properties abandoned, dragging down property values and ruining neighbourhoods. It sends $3.9bn to such neighbourhoods to buy and fix up foreclosed properties.
It goes far beyond addressing the current crisis, however. The legislation overhauls the FHA, which was created in 1934 to stabilise the mortgage market in the Great Depression. The Treasury Department gains unlimited power, until the end of 2009, to lend money to Fannie Mae and Freddie Mac or buy their stock. The Federal Reserve takes on a new “consultative” role overseeing the companies. The measure includes $15bn in tax cuts.
Conservative Republicans were vehemently opposed to the Bill, particularly the help for Fannie Mae and Freddie Mac. Critics say the companies enjoy lavish profits in good times and wield their outsized political clout to resist regulation while depending on the government to bail them out should they falter. (AP)
Originally published by By Julie Hirschfeld Davis IN WASHINGTON.
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