Monday, July 28, 2008

US Congressional Mortgage Bill: Far Too Little, to Late?

US Congressional Mortgage Bill: Far Too Little, to Late?

PANW Editor's Note: The question that activists involved in attempts to win a moratorium on foreclosures have about this bill is whether it will provide the relief necessary for millions of households across the United States. One of the main issues is whether it is just another scheme to provide a bailout to the financial institutions facing collapse, including Fannie Mae and Freddie Mac.

A moratorium on foreclosures would provide an immediate stay on evictions allowing people to remain in their homes in order to work out reasonable payment plans with the mortgage companies and banks. If this bill does not provide a stay for those applying for refinancing at lower rates, then it will not stem the growing crisis in the housing industry.

In addition, the so-called mortgage crisis is symptomatic of a far deeper malady within the capitalist system. Banks are failing at a phenomenal rate throughout the US and internationally. This act of Congress may be far too little, to late.

Abayomi Azikiwe, Editor
Pan-African News Wire

Mortage relief coming to help ease housing crisis

Congress OKs bill; Bush to sign it despite concerns

July 27, 2008

WASHINGTON -- Congress approved mortgage relief for 400,000 struggling homeowners Saturday as part of an election-year housing plan that also aims to calm jittery financial markets and bolster the sagging economy. President George W. Bush said he would sign it promptly, despite reservations.

The measure, regarded as the most significant housing legislation in decades, lets homeowners who cannot afford their 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.

In a rare Saturday session, the Senate voted 72-13 to send the bill to the president; the House passed it Wednesday. Michigan Sens. Debbie Stabenow and Carl Levin voted for the bill.

Bipartisan effort

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 Bush leaves office in January.

Bush had withdrawn his veto threat earlier in the week over $3.9 billion in neighborhood grants. He contended the money would benefit lenders who helped cause the mortgage meltdown, encouraging them to foreclose rather than work with borrowers.

"President Bush will sign this bill when he receives it, despite our concerns with some provisions, including nearly $4 billion to help lenders, not the homeowners this legislation is intended to serve," said Tony Fratto, deputy White House press secretary.

Many Republicans, particularly those from areas hit hardest by housing woes, were eager to get behind a housing rescue.

Treasury Secretary Henry Paulson's request for the emergency power to rescue Fannie Mae and Freddie Mac helped push through the measure. So did the creation of a regulator with stronger reins on the government-sponsored companies, as Republicans long have sought.

Democrats won cherished priorities in the bargain: the aid for homeowners, a permanent affordable housing fund financed by Fannie Mae and Freddie Mac, and the neighborhood grants.

"This is far more than sending a bill to the president's desk for his signature. It's sending a message to the American people that the Congress of the United States -- despite an alternative reputation -- can actually get things done, and can work together to achieve a good result," said Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee.

Still, Republicans weren't eager to celebrate.

Bush was not expected to hold a White House signing ceremony, and Senate Republican leaders didn't mention it at a news conference following the vote. In the House, more than three-quarters of Republicans voted against the bill.

Dodd, D-Conn., said he has summoned administration officials to his office next week to demand that the program be put into place quickly.

Help for homeowners

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 $300 billion 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 also is designed to relieve a broader credit crunch that has taken hold because of rising defaults and falling home values. To free up safer and more affordable mortgage credit, the bill permanently would increase to $625,000 the size of loans that Fannie Mae and Freddie Mac can buy and the FHA can insure. They also could buy and back mortgages 15% higher than the median home price in certain areas.

Democratic leaders, recognizing that the measure could be one of the last items to become law during what's left of their abbreviated election-year schedule, tacked on an $800-billion increase, to $10.6 trillion, in the statutory limit on the national debt.

Conservative Republicans were vehemently opposed to the bill, particularly the help for Fannie Mae and Freddie Mac.

Critics charge the companies enjoy lavish profits in good times and wield their outsize political clout to resist regulation while depending on the government to bail them out should they falter.

Sen. Jim DeMint, R-S.C., delayed the final vote because Democrats refused to allow him a vote on a proposal to ban the companies from lobbying or making political donations.

"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."

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An estimated 400,000 debt-strapped homeowners, many of whom owe more than their houses are worth, are in danger of foreclosure. The bill will offer them more affordable mortgages through the FHA.

What the housing bill will do

• 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. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.

• 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. The authority would expire Dec. 31, 2009.

• Create a new regulator, and tighten controls on Fannie Mae and Freddie Mac, including power for the regulator to approve pay packages for company executives. Create a new affordable housing fund drawn from their profits. Permanently raise the limit on the loans they may buy to $625,000 in the highest-cost areas. Allow them to buy loans 15% higher than the median home price in certain cities.

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

• Modernize the FHA, and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure -- currently set to revert to $362,790 by the end of the year -- to $625,000 in the highest-cost areas. The agency could insure loans 15% higher than the median home price in certain cities.

• Forbid the FHA to insure mortgages in which the borrower's down payment is paid by the seller, beginning on Oct. 1. Place a 1-year moratorium forbidding the agency to charge premiums based on the riskiness of the homeowner, until Oct. 1, 2009.

• Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who buy between April 9, 2008, and July 1, 2009. Allow people who don't itemize their taxes to claim a $500 to $1,000 deduction on their 2008 property taxes.

• Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.

• Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.

• Provide $180 million for pre-foreclosure counseling and legal services for distressed borrowers.

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