Congress Passes Massive Housing Bailout Bill
To assist foreclosure-threatened home owners, the bill allocates funds allowing the Federal Housing Administration (FHA) to insure up to $300 billion in new 30-year fixed-rate mortgages to be made available to at at-risk homeowners. The bill also increased the current FHA 3-percent down payment to 3.5-percent. The bill also authorizes the Treasury Department to extend an unlimited line of credit to Fannie Mae and Freddie Mac for the next 18 months. The Congressional Budget Office (CBO) has estimated that this provision of the bill may help as many as 325,000 people keep their homes.
The bill also establishes a special federal regulator assigned to exercise greater oversight over future funding for the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. The bill increases the maximum size of a home loan guaranteed by Fannie Mae and Freddie Mac to $625,500, up from $417,000. The higher loan limits are expected to make it easier for borrowers to secure mortgages. The CBO estimates the total cost to taxpayers of the Fannie and Feddie protective provisions of the bill at about $25 billion.
The bill also offers first-home buyers a one-time tax refund of up to $7,500 or 10-percent of the home's purchase price, whichever is less.
Despite having reservations over its costs, President Bush is expected to sign the bill.
As a taxpayer, this bill, specifically the bailout of Fannie Mae and Freddie Mac, will have an impact on your pocketbook. For a projection of just how hard the bite might be, read U.S. Economy Guide Kimberly Amadeo's analysis Fannie and Freddie Bail Out -- How Will It Affect You?
Also See:
Who are Fannie Mae and Freddie Mac?
Fannie and Freddie Bail Out -- How Will It Affect You? (US Economy)
Comments
I keep seeing things about how this will benefit first-time home buyers. What’s it going to do for third-time home buyers? I have to move and the best interest rate I can get on a preapproved mortgage is 7% which is going to make my life very difficult.
Marcia — I think the hope here is that stabilizing the mortgage industry will tend to “float all boats,” yet I doubt many breaths are being held waiting for it to happen. I personally find it sort of irksome that taxpayers are now being tapped to help people who could not afford them in the first place buy houses. I know people who make $90K a year, but managed to get mortgages for $3 million homes and are now facing foreclosure. My heart just isn’t into bailing them out. My money, yes… my heart, no.
The bill is an outrage and insult to every American who lives within their means. We shouldn’t be rewarding irresponsible and reckless behavior on the part of borrowers who bought more home than they could afford and lenders who through sensibility out the window. It’s doubtful this legislation will do much in the way of helping the stated beneficiaries anyway. Remember, participation is voluntary for the lenders and to swap their loan for a FHA govt guaranteed loan, they have to write down the principal. So which loans would lenders agree to write down? Only the worst loans. On the other hand borrowers are supposed to be able to qualify. There is a great analysis entitled “Seven Flaws of Housing Legislation” available to read at no cost at http://www.UsHousingMeltdown.org. Our Congress is treading on a slippery slope. Who are we going to bail out next?
Dillon: Yeah, who would have thought that less than 10 years into this new century, Americans with no money would be able to buy news houses? Oh, the next bail out? The airlines, I’m betting. Better yet, maybe we’ll just nationalize them.
Robert
Why is it that when I purchased my home sixteen years ago, I had to plunk 20% down, (single female); here’s the rub — my real estate agent kept telling me I could afford a larger home/mortgage. This is what has occurred here, stupidity and greed by both sides – the agent and the buyer. I do not believe the federal government should be our nanny! Do any of these people know how to spell responsibility? Look it up!
The most substantial part of the bailout only helps a small slice of the homeowner population and is mainly about helping people get out of their ARM resets. This basically means that the taxpayer will be taking on the risk created by those with no financial common sense. There’s some details about this at http://www.bailoutinfo.com
Dillon,
Not everyone made irresponsible decisions! Some of us were convinced, as first time home buyers, than certain loan options would be in our best interest. We bought 4 years ago when the housing market was booming. We had no plans to stay in our home for more than 5 years, so we were put into an interest only 5 yr ARM. We did not purchase a home we could not afford either. We were WELL in our means. After 3 years, my husband I were were relocated for jobs and now we are in a situation where our loan in going to adjust and we are 15,000 upside down on our mortgage, making it impossible for us to sell! Some many people are in the same situation that we are in, and that is why something needed to be done. We should have NEVER been put into the type of loan we were put into.