Feeds:
Posts
Comments

Posts Tagged ‘Mortgages’

Cost of propping up Fannie Mae and Freddie Mac pegged as high as $25b, part of housing rescue.

WASHINGTON (AP) — A federal rescue of Fannie Mae and Freddie Mac could cost taxpayers $25 billion, congressional budget experts said Tuesday, as lawmakers put finishing touches on legislation that would tap the troubled mortgage giants’ profits to help save homeowners from foreclosure.

A costly rescue is just a worry, not a fact at this point. Peter R. Orszag, director of the Congressional Budget Office, predicted in a letter to lawmakers that there’s a better than even chance the government will not have to step in to prop up the companies by lending them money or buying stock.

But Congress is expected to vote as early as Wednesday on a housing measure that would give the Treasury Department authority to throw Fannie and Freddie a temporary lifeline.

It’s part of a plan to let hundreds of thousands of strapped homeowners refinance into more affordable, government-backed loans at fixed rates rather than losing their homes. Defying President Bush, the bill would send $4 billion to neighborhoods hit hardest by the housing crisis — something that has prompted the White House to threaten a veto.

Taking advantage of the momentum behind the election-year housing package at a time when economic woes top voters’ concerns, Democratic leaders planned to include a separate measure to increase the statutory limit on the national debt by $800 billion, to $10.6 trillion.

The housing bill also would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored companies that own or guarantee $5 trillion in U.S. mortgages — almost half the nation’s total.

And it would create a new affordable housing fund, which would be drawn from the firms’ profits and cover any losses from the foreclosure rescue plan.

Treasury Secretary Henry M. Paulson has been pressing to add to the bill temporary power for the government to offer unlimited sums to prop up Fannie Mae and Freddie Mac, a backup plan he says is intended to help calm investors and stabilize financial markets. The firms’ stocks have plummeted on fears about their financial stability in a chaotic housing market where falling home values and rising defaults have contributed to large losses at the companies.

Orszag said it’s most likely that the companies will remain afloat and the government won’t have to put up any money, but there’s a very small possibility that Treasury will have to step in to help cover losses at Fannie and Freddie topping $100 billion. The $25 billion estimate reflects his office’s best guess of how big a federal infusion would be needed.

“This is like two months in Iraq for something that involves, literally, market stability and (calms) global jitters,” said Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman. Dodd said he hoped the legislation would clear Congress by the end of the week.

With financial markets now assuming the measure will be approved, Orszag suggested the cost of inaction could be steep, too.

“It is arguable that if it were not enacted at this point, that the consequences could be quite severe,” he told reporters.

Paulson said in a New York speech Tuesday that Congress needs to quickly approve the Fannie and Freddie support package to make sure they maintain their critically important role in housing finance. He said their operations were “central to the speed with which we emerge from this housing correction.”

“Because of their size and scope, Fannie and Freddie’s stability is critical to financial market stability,” Paulson told an audience at the New York Public Library. “Investors in our nation and around the world need to know that we understand how important these institutions are to our capital markets broadly and to the U.S. economy.”

Later, at the Capitol, he used a weekly closed-door party lunch to try to sell the plan to Senate Republicans.

Paulson told the group that by showing a clear willingness to back up Fannie and Freddie, Congress actually would help ensure that no federal rescue would be needed.

“If you go in strong, it’s less likely that you’re going to have to use the strength,” Sen. Sam Brownback, R-Kan., said after the session.

However, Senate critics have charged that the open-ended offer of support exposes taxpayers to billions of dollars of losses.

Sen. Jim Bunning, R-Ky., told reporters that Paulson was trying to “ram down” his proposal to shore up Fannie Mae and Freddie Mac. That, said Bunning, “smacks of socialism.”

Rep. Jeb Hensarling, R-Texas, head of the conservative Republican Study Committee, said the companies should be privatized as part of any plan to rescue them.

“If Congress is forced to bail out Fannie and Freddie, I believe that we must take all the necessary steps to protect taxpayers” from a future collapse, he said.

However, many lawmakers in both parties regard a lifeline for the companies as vital to restoring investor confidence and market stability.

“Freddie and Fannie are important mainstays in the American economy, and we need to find solid footing for these enterprises before the economy can recover, right itself and get back on track,” said Sen. Judd Gregg of New Hampshire, the top Budget Committee Republican.

The $25 billion cost estimate “will pale in comparison to our long-term costs if we do not address this problem now, and so I fully support (Paulson’s) authority to provide funding for these institutions if it comes to that,” Gregg said.

Still, the measure faces delaying tactics from foes who oppose tying it to the broader housing package, particularly the $4 billion in neighborhood grants.

Paulson “may want this bailout so bad that he may give in to that,” said Sen. Jim DeMint, R-S.C. But Democrats “will use this as an excuse to pass some bad policy, and whether or not the president holds the line is the question right now.”

Advertisements

Read Full Post »

WASHINGTON (AP) – A mortgage rescue to help hundreds of thousands of struggling homeowners avoid foreclosure and get more affordable, safer loans passed the Senate overwhelmingly Friday, but it faces a bumpy road amid continuing turmoil in the housing market.

The 63-5 vote reflected a keen interest by Democrats and Republicans to send election-year help to distressed homeowners with economic issues topping voters’ concerns.

The plan lets homeowners buckling under mortgage payments they can’t afford keep their homes and get more affordable mortgages backed by the Federal Housing Administration. Banks that agreed to take substantial losses on those distressed loans could avoid costly foreclosures and be assured of recovering at least some money.

The new program would let the FHA insure as much as $300 billion in new mortgages, helping an estimated 400,000 homeowners.

It still faces challenges, however, with the House planning to rewrite key details and the White House threatening a veto without major changes.

“It’s not the final stop, but it is a major stop in getting this bill done,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. “For those who said this Congress cannot come together in a bipartisan fashion to do something responsible about housing, this bill does that.”
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and an architect of the bill, says the few but significant revisions House leaders are seeking could be made in as little as one week.

Dodd said he was expecting minor “tweaks” that could be dealt with quickly.
But key players are bracing for intense negotiations to resolve the differences. They hope to smooth over disputes with the White House at the same time, with an eye toward producing a bill President Bush could sign later this month.

The White House Friday renewed its warning that Bush would veto the Senate-passed bill without revisions, citing $3.9 billion in the measure for buying and rehabilitating foreclosed properties it said would help lenders, not homeowners.

The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.

Democrats are divided over important elements of the plan, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy. The Senate measure sets them at $625,000, while House leaders—including Speaker Nancy Pelosi, D-Calif.—want the cap as high as $730,000.
House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie Mae and Freddie Mac over six months.

“We’d have a hard time agreeing to that,” Dodd told reporters Friday. He called a Capitol Hill news conference to dispel fears about the financial health of Fannie Mae and Freddie Mac as their stocks plummeted on reports that the government was considering taking over one or both of them.

Another key point of dispute is the funding in the Senate measure for buying and fixing foreclosed properties. The House’s band of conservative “Blue Dog” Democrats oppose the money, arguing that it would swell the deficit unless paired with cuts or tax increases to cover the cost.

But many Democrats, particularly members of the Congressional Black Caucus, are fighting to keep the funding, which they say will help prevent the communities hardest hit by the housing crisis from sliding into blight.

“There are people who tell me to ignore” that threat, Frank said in a statement Friday. “But there is too much that is important in this bill, and it has already been too long delayed by procedural problems in the Senate, for us to risk the further delay involved in a veto.”

He said he was working to find a way to shift the funds to a must-pass spending bill that would be approved before lawmakers scatter for the year in September.

Dana Perino, Bush’s spokeswoman, said the money should be stripped out of the measure “so that they can get a housing bill to the president that he could sign right away.”

Sen. Barack Obama, D-Ill., the presumptive presidential nominee, said Bush should drop his opposition to the housing plan and other Democratic efforts to ease economic pain.

“I call on the administration to support this bill along with a second emergency stimulus package to jumpstart the economy and build on this important start to advance more rigorous measures to protect homeowners from foreclosure.”

With the administration scrambling to tamp down on investor fears about Fannie Mae and Freddie Mac, Perino called the new regulations in the measure for the two mortgage giants its “most important feature.”

Lawmakers and the Bush administration agree on the central concept behind the housing package: allowing the government to backstop new mortgages for struggling homeowners.

To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting a newly created affordable housing fund drawn from Fannie Mae and Freddie Mac profits.

‘Watch out now, take care, beware, of politicians, they’ll steal your life and leave you nothing. Beware of darkness.’

Read Full Post »