Sweeping Housing Relief Bill Signed

Yesterday, President Bush signed into law sweeping housing relief legislation. One of the key parts of the bill authorizes the Federal Housing Administration (“FHA”) to help homeowners who, because of falling prices, owe their lenders more than their houses are worth. The law provides that if lenders agree to forgive a portion of the debt and provide new loans worth no more than 90 percent of the home's present value, the FHA will insure the new loans and agree to pay off the lenders if borrowers default. Homeowners also will get an immediate equity stake in their properties, which they would have to share with the government if they sell or refinance. The law is targeting homeowners (perhaps as many as 400,000 nationwide) who are teetering on the edge of foreclosure.

The bill also contains provisions designed to bolster confidence in the Fannie Mae and Freddie Mac mortgage companies. The law provides temporary authority to the administration to offer the struggling mortgage-finance giants Fannie Mae and Freddie Mac an unlimited line of credit, a move designed to calm global concerns about the government-sponsored but investor-owned firms, which guarantee nearly half of all outstanding mortgages in the United States. The law also will establish a new regulator for Freddie and Fannie and overhaul the Federal Housing Administration. The Federal Housing Finance Agency, a new, independent agency created under the new law, will have jurisdiction over Fannie Mae and Freddie Mac.