Bush signs housing bill intended to provide mortgage relief for homeowners

July 30, 2008 by · Leave a Comment
Filed under: Industry News 

President Bush signed a housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so.

Early in the morning and out of public view, the president signed it without fanfare in the Oval Office, adding his signature to a measure he once threatened to veto. The White House said he was accompanied by Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and other administration officials.

“We look forward to put in place new authorities to improve confidence and stability in markets,” White House spokesman Tony Fratto said. He said the Federal Housing Administration would begin to put in place new policies “intended to keep more deserving American families in their homes.”

The legislation is regarded as the most significant housing bill in decades. It won approval from lawmakers eager to come up with an answer to the growing housing crisis in an election year.

The measure includes $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners; $3.9 billion to help communities fix up foreclosed properties; and $15 billion in tax cuts, including an expanded low-income housing tax credit and a credit of up to $7,500, to be repaid, for some first-time home buyers.

The number of homeowners who could lose their homes to foreclosure by the end of 2009 is estimated to be around 2.8 million. Under the legislation, 400,000 having trouble with payments could avoid it by trading their loans for new, more affordable mortgages through the Federal Housing Administration.

Their banks would have to agree to allow the swap and to take a large loss in exchange for avoiding the lengthy and costly foreclosure process. To qualify, homeowners would have to be paying more than 31 percent of their incomes toward their mortgages and show they could afford to make the payments on a new, smaller loan.

The measure also is designed to help stabilize markets, in part by making credit more easily available amid rising defaults and falling home values.

The bill permanently increases to $625,000 the size of home loans in high-cost areas that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy and that the FHA can insure. It would otherwise have reverted to $417,000 for Fannie and Freddie and $362,790 for the FHA by the end of the year.

The White House sought to focus attention on parts of the legislation aimed at calming markets. Those include the offer of a temporary but unlimited government line of credit for troubled Fannie Mae and Freddie Mac. The Treasury Department gains power, until the end of 2009, to lend them emergency money or buy their stock.

This is considered crucial because investor fears about the health of the companies, which buy or guarantee about half of the nation’s mortgage loans.

An overhaul of the Depression-era FHA also was requested by Bush. So, too, was the provision to keep homeowners from making overly risky mortgage choices by requiring lenders to show how high a borrower’s payment could get under the terms of his mortgage. It provides $180 million in preforeclosure counseling.

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