The new housing bill is the most important piece of legislation effecting domestic affairs to come out of congress in some time now. President Bush signed it into law just yesterday. Its details will effect the national real estate market in a powerful way. So, what are the main features of the new law?
First, it is an intentional misnomer created by the Democrats that authored it to call it a housing bill. It is a financial bail out of two of the country’s largest lenders, Fannie Mae and Freddie Mac. Roughly eighty percent of the bill’s budget is directed towards using tax dollars to, free of charge, save these two huge government-backed companies from their own ineptness.
While it is a finance bill, it does contain some important features for the housing industry. Perhaps most importantly, the law addresses some of the subprime crisis by allowing large numbers of buyers who can’t afford their monthly payments to refinance their loans into government-backed loans created by the Federal Housing Authority (FHA).
There are other features that modernize the FHA in a number of important ways, and expand its authority slightly.
Perhaps most importantly in terms of the housing part of the law, it contains four billion dollars in emergency aid for community groups to buy up neighborhoods that were devastated by the subprime crisis. A number of these areas have become new ghettos. This four billion will be aimed at the worst of these areas, and will allow the community to keep urban and suburban blight to a minimum.
The bill goes into effect on October 1. The author of the Bill, Massachusetts’s Rep. Barney Frank, Chairman of the Finance Committee in the House is pressuring companies to extend failing mortgages until that date so as to minimize the number of foreclosures.
Companies appear unwilling to do this in many cases, but many banks are also weary of agitating the combustible new chairman of the committee.
The last major feature of the bill: A new federal regulator who will oversee the businesses of Fannie and Freddie.
While many worry that the bill is too little too late, it will surely have some effect. It became law because the government had to react to save Freddie and Frannie, but some provisions, especially the FHA loan provisions and the $4 billion emergency aid provision will blunt the worst of the subprime crisis, even if it overall will have only a minor effect.