Congress acts fast to stem foreclosures

US HOUSING and banking regulators have been summoned to Capitol Hill in Washington this week in an attempt to speed enactment of sweeping housing legislation lawmakers passed at the weekend.

The move will eliminate nervousness in European stock markets that the giant US mortgage companies Fannie Mae and Freddie Mac could fall victim to the subprime mortgage crisis that has engulfed the global banking system over the past 12 months.

The US Congress passed the legislation to stem foreclosures and prop up Fannie Mae and Freddie Mac in its most sweeping effort to halt a rise in foreclosures in the biggest housing recession since the 1930s depression.

But it could take as long as a year to implement regulations that will provide help to almost 400,000 US homeowners at risk of foreclosure.

The centrepiece of the legislation is a new programme at the federal housing administration, an agency of the US department of housing and urban development, to insure up to $300 billion in refinanced 30-year fixed loans for about 400,000 borrowers struggling with their monthly payments after loan holders agree to cut their mortgage balance.

The measure offers $15 billion in tax breaks, including provisions offering the equivalent of interest-free loans worth up to $7,500 for first-time homebuyers. Other provisions give US states money to buy up foreclosed properties and create a new affordable housing programme financed by Fannie Mae and Freddie Mac.

Meanwhile, US senator and Republican presidential candidate John McCain has blamed Wall Street for the credit crisis that has caused chaos in financial markets since August 2007.

"Wall Street is the villain in the things that happened in the subprime lending crisis and other areas where investigations and possible prosecution is going on," Mr McCain said during a taped appearance on US television network ABC's This Week programme. Mr McCain said he supported the housing Bill because the risk of Fannie and Freddie's failure is outweighed by the potential cost to US taxpayers - estimated to be as much as $25 billion.

- (Bloomberg)

This article appears in the print edition of the Irish Times