After months of back and forth between the House, Senate and White House, on July 30 the President signed into law the Housing and Economic Recovery Act of 2008, H.R. 3221.  The bill passed the House on July 23 with bi-partisan support 272-152, and it cleared the Senate on July 26 by a vote of 72-13.
The breakthrough came when the Administration initiated a proposal to address a growing lack of confidence in the large mortgage funding companies, Fannie Mae and Freddie Mac.  The government would increase their line of credit and allow the Treasury to buy stock in the companies to make them more financially sound.  In order to accommodate the potential cost to the federal government the legislation increases the federal debt ceiling by $800 billion to $10.6 trillion. The Administration also dropped its threat to veto the bill because it provides $3.9 billion in Community Development Block Grant funds to states and localities to buy and rehabilitate foreclosed properties for resale.

Besides shoring up Fannie Mae and Freddie Mac, the legislation provides a $300 billion expansion of the Federal Housing Administration’s program of loan insurance giving borrowers at risk of foreclosure an opportunity to renegotiate their loans.  It also provides a one-time tax credit of up to $7,500 for first-time homebuyers which must be repaid without interest within 15 years.  Especially important to advocates, the bill establishes a national affordable housing trust fund to construct, rehabilitate and preserve housing.  The funding source for the trust fund is a share of the new business generated by Fannie and Freddie, estimated to be $500 million annually.  This is the first low-income housing production program passed by Congress since 1990.  For more details about these and other provisions in the bill see Human Needs Report for July 21:  http://www.chn.org/humanneeds/080721d.html.

H.R. 3221 creates a new more powerful regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency.   The new regulator will have enhanced authority to raise capital standards, to set and enforce internal controls, and to take corrective action.  It will oversee, and can directly restrict, executive compensation at Fannie Mae and Freddie Mac.

Not as widely reported in the media are other positive provisions in the bill to expand affordable rental housing and homeownership.  The bill makes it easier for Public Housing Authorities and private owners to provide affordable rental units in mixed income settings; it increases the amount of the Low Income Housing Tax Credits to states for developing affordable housing; and it provides additional housing bond authority for states to issue tax-exempt bonds to support rental housing or homeownership.

Currently Fannie and Freddie and their shareholders enjoy the benefits of the companies’ profits, but rely on government backing if the mortgage giants falter.  While there is widespread agreement that it is necessary to take aggressive action to assure the financial world that Fannie and Freddie have the backing of the government because of their central role in housing financing, there is concern that taxpayers could be left paying billions of dollars if the housing market continues to deteriorate.  There is also agreement that in the future the size and the role of Fannie and Freddie must be reexamined.

Most economists agree that it will take some time for the housing mortgage ship to right itself as evidenced by the 739,714 home foreclosure filings in the second quarter of 2008 alone.  The Housing and Economic Recovery Act of 2008 is one step in addressing the problem.

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