Congress Approves $300 Billion Housing Rescue Bill

The U.S. Congress approved on Saturday a major housing market rescue bill. The Senate and House took immediate action on the 694-page HR 3221 bill – that proposes, effective October 1, $300 billion in loan guarantees to help an estimated 400,000 families who face losing their homes to foreclosure.

Included in this bill is also a $4 billion measure for neighborhood stabilization that would help cities and localities to deal with the growing number of vacant and abandoned properties left behind from foreclosures.

The Senate approved the bill in a 72-13 vote that President Bush is expected to sign without delay.

Fannie Freddie CongressThe bill also offers temporary, contingency financing for Fannie Mae (FNM) and Freddie Mac (FRE) and creates a new regulator for the GSEs including more authority from the Federal Reserve which will play a greater role supervising the duo’s capital.

Texas Republican Sen. Kay Bailey Hutchison, notes Reuters – said the housing bill had positive aspects. But she added, “I am troubled by the inclusion of an unlimited U.S. Treasury credit line to Fannie Mae and Freddie Mac” and possible government stock purchases.

Sen. Hutchinson’s comments would make sense — only if we exclude the fact that in the absence of the mortgage giants, the mortgage market would practically shut down. Both ailing GSE’s, together own or guarantee roughly half of the nation’s $12 trillion outstanding home mortgage debt. Considering the fragile state of the economy and the meltdown of the housing sector, I don’t think- that would be such a good economic as well as political move.

Let’s keep in mind, the housing devastation was also caused by lax policies and not enough oversight out of Washington. So, the obligation to do what is right from Washington to fix it, is certainly there.

This bill should mark the turning point in the house sector’s downturn and the country’s credit crunch.

About Ron Haruni 1036 Articles
Ron is the Co-Founder & Editor in Chief of Wall Street Pit. Web Site: Wall Street Pit

2 Comments on Congress Approves $300 Billion Housing Rescue Bill

  1. I write this on 9/24/08, as the Paulson Plan is being ramed down our throats.

    The last line in the article:
    “This bill should mark the turning point in the house sector’s downturn and the country’s credit crunch.”

    Shows just how wrong Mr. Haruni was, and is.

  2. Mike, if we base our projections on real data — as we should, I would have to say (very respectfully), your argument holds no validity.

    In terms of the credit crunch issue, which is the second part of your argument ; take a look at Total Consumer Credit Outstanding. It reached an all-time high as of July ’08, printing $2572.3 Trillion from $2564.6 in June (credit supply has never been higher.) Yet, the general assumption out there is the supply of commercial bank credit has completely dried up. Not true. The numbers simply do not support the claim. In addition, the most recent report, for Aug ’08, shows outstanding loans of $1,514 billion, an all-time high. This loan volume is nearly 16% greater than it was a year earlier, and 30.8 % greater than it was two years earlier. You have to wonder, if credit is really drying up so much as the media hypes it. What surprises me is how little attention is being paid to the data.

    It is critical to recognize that contrary to the claims of the central bank, the Treasury, or the financial newspapers – in reality, we are not facing a liquidity crisis, which by definition implies a financial turmoil caused by insufficient supplies of money flowing through the veins of the financial system. Instead, we are dealing with an ‘insolvency crisis’ caused by the fact that many financial institutions are effectively broke. And the effect of it is a trauma in the banking sector. Basically, the root problem is not a lack of liquidity in the system. It’s the existence of all sorts of institutions out there that nobody wants to lend to. The distinction is very important.

    As far the housing sector goes, the picture is not rosy by any stretch of the imagination. Certainly, looking ahead, the backdrop for the housing market will continue to be challenging over the next q’s. Nevertheless, based on NAR’s numbers, the inventory of new and existing homes for sale has diminished somewhat in the last several months – which is a positive sign. The backlog of unsold homes shrank by 7% from July’s record high. Housing demand continues to indicate signs of some stabilization, and more importantly, the U.S. housing market didn’t deteriorate further in August. Now, using the term ‘turning point’ doesn’t mean spiking action. It is rather a process where the sector will try, as it’s currently doing, to form a bottom, range, hopefully consolidate and then start uptrending. The key point, is that some improvement is occurring.

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