Might there be a housing rescue bill after all?
Monday night Senator Chris Dodd (D-CT and Senator Richard Shelby (R-AL), Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs announced that they had reached an agreement that will be presented to the whole committee on Tuesday.
President George Bush has repeatedly said he would veto earlier versions of the bill, including one passed by the entire House, because they would involve the use of taxpayer money and would bail out lenders and speculators. Dodd and Shelby think that their compromises to "The Federal Housing Finance Regulatory Reform Act of 2008" has eliminated those problems and the Administration said it was willing to consider the Senate version which shifts the burden of financing to the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.
The new compromise legislation would create an affordable housing fund, financed by Freddie and Fannie which would be used in year one to provide about $500 million for foreclosure relief.
Like the House version of the bill which passed the whole House earlier, the Senate bill includes a provision authorizing the Federal Housing Administration to guarantee fixed-rate 30-year loans after lenders had reworked them to lower the principal balance to reflect current housing prices. The Congressional Budget Office estimated that the effort would result in remediation of about one-half million mortgages over five year at a cost to taxpayers of $2.7 billion. By reducing the time-frame of the legislation to three years and taking money from the housing fund, the cost to taxpayers is expected to be eliminated.
The fund would collect a subsidy of one-half cent on every dollar of mortgages purchased by Fannie Mae or Freddie Mac and would tighten regulation of the two GSEs by creating a new Federal Housing Agency which would oversee the companies. The bill would also set a new limit on conforming loans of $550,000 in the most expensive markets. The current conforming loan limit is $417,000 but there were patchwork exceptions to this ' with some loans for as much as $729,250 authorized in very expensive markets ' in legislation passed earlier this year. Those emergency limits are set to expire at the end of the year.
"This legislation is good news for both the markets and homeowners," said Dodd. "The bill addresses the root of our current economic problems ' the foreclosure crisis ' by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes. The bill also establishes a new fund that will help create more affordable housing for millions for Americans. Finally, this legislation takes a balanced approach toward reforming the GSEs, creating a world class regulator with enough authority to help these vital institutions operate in a safe and sound manner, while better fulfilling their important mission of providing affordable housing for Americans."
Senator Shelby, a strong proponent of GSE reform, said, "In my judgment, the new GSE regulator created under this legislation would be granted much needed authority and flexibility to regulate the GSEs appropriately. Ultimately, a strong regulator will better serve the interests of homeowners and taxpayers for years to come. I'm also pleased that the Hope for Homeowners proposal is paid for. I've long said that we should do what we can to help struggling homeowners, short of asking the taxpayer to foot the bill.