It appears that the proposed housing bill has all but passed now that the threat of a veto from the White House is gone. It is expected that the bill will easily pass through the House and Senate and then be signed by President Bush within the next week or so. Whether this bill will ultimately help or hinder our economy remains to be seen, but unless you are a bank, chances are this bill probably isn’t too exciting for you.
The main opposition to this bill all along has been that it represents a bailout of lenders and really doesn’t offer homeowners much relief. Now that Fannie Mae and Freddie Mac are on the ropes, Bush was willing to cut a deal and withdraw his veto in order to get a support measure for the two companies through. The following are some of the key components of the bill:
- Fannie and Freddie support (see previous post: Foreclosure Bill and $300 billion Housing Bill could pass thanks to Fannie and Freddie)
- Allow the government to insure up to $300 billion in refinanced mortgages
- $4 billion program for local governments to buy and rehab foreclosure properties
- Regulation changes for Fannie and Freddie ($625,000 loan limit, oversight of top executive compensation)
- Raise national debt limit to $10.6 trillion from $9.8 trillion
Of these, the most controversial one has been the $4 billion foreclosure program for local governments. On several fronts it represents a bailout of lenders, and considering the poor lending decisions they made, it is something that is hard to support. We will have to see how the $300 billion allocated for refinanced mortgages ends up helping, but if it goes anything like the other programs which have been rolled out of late, it is doubtful all that many homeowners truly in need will get assistance. Most likely, we as taxpayers will end up subsidizing the mortgages of a few homeowners who probably would have been okay (though they probably would have gone through some struggles) without our help.
Personally I’m against this bill, and I would have loved nothing more than to see it vetoed by President Bush. Unfortunately, it doesn’t appear like that is going to happen. If you want to know why we should be so opposed to this bill, look no further than the last bill component listed above. Our national debt is about to pass $10 trillion, yet we keep throwing more money at every problem we come across. The Fannie and Freddie rescue plan is probably something that needs to be in place, because if they fail, our economy is doomed for the most part. But we really need to look long and hard at whether these companies should be our long-term solution. I can probably live with bailing them out once, and learning from our mistake. But if they just keep doing what they are doing, what is to stop them from needing another bailout down the line? If we hang out an implied government guarantee then taxpayers are in essence subsidizing the shareholders of these companies. This is a long-term problem that needs to be evaluated and addressed. In the meantime, get ready for the latest attempt to resurrect the housing market. This attempt is bigger than ever, but unfortunately I foresee it falling short just like its predecessors. The housing market needs more than this housing bill to turn around--bottom line, it needs to get more affordable for the masses.