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Housing Bill Gets Senate Nod

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The Washington Post

Published: July 27, 2008

WASHINGTON - Even as a huge bipartisan majority in the Senate voted Saturday to send a sprawling housing bill to the White House, economists, consumer advocates and other analysts said the package of programs for cash-strapped homeowners and shaken mortgage lenders is unlikely to relieve the foreclosure crisis that is driving the nation toward recession.

"This is not the end of the housing crunch," said Jared Bernstein, a senior economist at the Economic Policy Institute. "Housing prices have already fallen 15 percent and they need to fall 10 percent more. This bill isn't going to change that equation."

The Senate voted 72 to 13 to approve the bill, which seeks to halt the steepest slide in home prices in a generation, rescue hundreds of thousands of families from foreclosure and restore confidence in the nation's largest mortgage-finance firms. White House officials said President Bush is likely to sign it by midweek.

During Senate debate, Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and one of the bill's lead sponsors, cited a litany of grim statistics about the mortgage crisis, including that an estimated 8,500 families a day are falling into foreclosure and that one in every eight homes is projected to enter foreclosure during the next five years.

Analysts said lawmakers had little choice but to act. "Everything is so unstable and people are so panicky that I see a lot of this as an effort to calm people down," said Deborah Lucas, a finance professor at Northwestern University's Kellogg School of Management. "The whole bill is an attempt to change the equilibrium."

The measure grants Treasury Secretary Henry Paulson Jr.'s request for authority to extend an unlimited line of credit to Fannie Mae and Freddie Mac, a move aimed at reassuring global markets that the firms will not be allowed to fail.

The centerpiece of the legislation is a plan to prevent as many as 400,000 foreclosures by authorizing the Federal Housing Administration to help families who owe the banks more than their homes are worth.

If lenders agree to forgive a portion the debt and write new loans worth no more than 90 percent of the home's current, lower value, the FHA will insure the new loans and agree to pay off the lenders if borrowers default.

AMONG THE BILL'S PROVISIONS

•Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to an estimated 400,000 debt-ridden homeowners.

•Allow the Treasury Department temporary authority to lend money to Fannie Mae and Freddie Mac or buy their stock to avert a collapse of one or both of the mortgage giants.

•Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives.

•Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed properties.

•Forbid the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning Oct. 1.

•Provide $15 billion in housing tax breaks, including for low-income housing.

The Associated Press

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