The new housing bill is the most critical piece of legislation affecting domestic affairs to come out of Congress in some time now. President Bush signed it into law just yesterday. Its details will affect the national real estate market powerfully. 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 bailout 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 substantial government-backed companies from their ineptness.
While it is a finance bill, it does contain some essential 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).
Other features modernize the FHA in some essential ways and expand its authority slightly.
Perhaps most importantly regarding 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 to minimize the number of foreclosures.
Companies appear unwilling to do this in many cases, but many banks are also wary 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 worries that the bill is too little too late, it will undoubtedly 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.