Congress tosses a life preserver to housing market
Congress sent President Bush legislation Saturday designed to help homeowners avoid foreclosure, spur home buying and prop up struggling mortgage giants Fannie Mae and Freddie Mac.
The president intends to sign the bill as soon as he receives it.
It is the government’s most sweeping response yet to the nation’s housing crisis.
The Senate, in a rare weekend session, overwhelmingly approved the measure, 72 to 13, a reflection of the election-year jitters on Capitol Hill over the troubled economy.
Earlier in the week, the House approved the bill, 272 to 152.
“Today, Congress did more than send a bill to the president -- we sent a message to American families that help is on the way,” said Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), who helped write the legislation.
“In addition to providing urgently needed relief to homeowners on the brink of losing their homes, this legislation will address our broader economic problems by helping to reform our housing sector and provide reassurances to our financial markets,” Dodd said.
Bush plans to sign the legislation despite reservations about “some provisions, including nearly $4 billion to help lenders, not the homeowners this legislation is intended to serve,” said Tony Fratto, deputy press secretary.
“It’s been nearly six years since we called for a strong, independent regulator for Fannie Mae and Freddie Mac and nearly a year since the president called on Congress to quickly pass legislation to modernize the Federal Housing Administration to keep more deserving Americans in their homes, especially low-income Americans,” Fratto said.
Critics of the measure called it a bailout of speculators and irresponsible borrowers at potentially huge cost to taxpayers.
“This bill is fraught with too much risk and too little protection to the taxpayer,” Sen. Christopher Bond (R-Mo.) said in a statement, contending that it would allow lenders to “dump their worst subprime mortgages” on the Federal Housing Administration.
All the votes opposing the legislation were cast by Republicans.
Democrats, who control Congress, are looking at other proposals to turn around the economy. Lawmakers in September will debate a second election-year economic stimulus package that would provide $50 billion or more for bridge and road projects, home-heating assistance and other matters.
The bill passed Saturday, the American Housing Rescue and Foreclosure Prevention Act, contains a key provision allowing the Federal Housing Administration to guarantee up to $300 billion in lower-cost mortgages -- provided that lenders accept significant losses.
The provision is expected to help at least 400,000 homeowners.
The bill gives the Treasury Department authority to temporarily increase its lending to Fannie Mae and Freddie Mac and buy their stock, a provision that Treasury Secretary Henry M. Paulson has called crucial to bolstering confidence in the companies and stabilizing housing finance markets.
The Congressional Budget Office recently estimated that there was a “probably better than 50%" chance that the federal bailout would not be needed.
But if it is, it could cost taxpayers $25 billion, budget analysts said.
The measure includes about $15 billion in tax breaks, including a tax credit that is, in effect, an interest-free loan of up to $7,500 for first-time home buyers.
It also funnels $4 billion to communities hard hit by foreclosures to buy and renovate abandoned properties, a provision that supporters say would prevent blight and a decline in the value of neighboring properties.
The measure gives states authority to issue an additional $11 billion in tax-exempt bonds to refinance troubled loans, provide loans to first-time home buyers, and finance low-income rental housing and financial counseling.
It permanently raises the cap on mortgages that Fannie Mae and Freddie Mac can buy and that the Federal Housing Administration can insure to $625,500 in high-housing-cost markets such as California.
The bill also sets up a new regulator, the Federal Housing Finance Agency, to oversee the mortgage giants.
Voting for the legislation in the Senate were 43 Democrats, 27 Republicans and the chamber’s two independents.
Republicans voting for the measure included Sen. Judd Gregg of New Hampshire, who called it “one of the most important things our government can do right now to help prevent the collapse of our economy.”
Both presumptive major-party presidential nominees, Republican Sen. John McCain of Arizona and Democratic Sen. Barack Obama of Illinois, have expressed support for the legislation but missed the vote Saturday.
Obama started his day in London, wrapping up his weeklong overseas trip; McCain, after campaigning in several states last week, was at his home in Sedona, Ariz.
The Senate action came one day after a new report showed that foreclosure filings nationally during the second quarter were up 121% from the same period a year ago.
The problem remains acute in California and Florida, which accounted for 16 of the top 20 metro foreclosure rates during the second quarter, with the Stockton and Riverside-San Bernardino areas No. 1 and 2 respectively, according to Irvine-based RealtyTrac.
Sen. Jim DeMint (R-S.C.) forced the Saturday vote to protest the Democratic leadership’s refusal to allow a vote on his proposal to ban the federally chartered but privately operated Fannie Mae and Freddie Mac from lobbying Congress and making political contributions if they receive a bailout.
DeMint spokesman Wesley Denton accused the Democrats of seeking to “protect Fannie and Freddie so they can continue funneling money back to politicians on Capitol Hill and now do it with taxpayer money.”
Jim Manley, a spokesman for Senate Majority Leader Harry Reid (D-Nev.), called DeMint’s proposal a “desperate, cheap stunt designed to distract attention from the fact that he has stalled the housing bill for so long.”
Freddie Mac’s PAC has contributed $202,997 to federal candidates in this election cycle, evenly divided between Democrats and Republicans, while Fannie Mae’s PAC has contributed $617,900, 59% of it to Democrats, according to the independent Center for Responsive Politics.
Fannie Mae spokeswoman Amy Bonitatibus, asked about a lobbying ban, said: “It is critical for Fannie Mae and other financial service companies to be able to communicate our interests and concerns in order to advance homeownership and affordable housing in America.”
She declined to comment on the proposal to prohibit the mortgage company from making political contributions.