The US Congress approved a massive housing market rescue bill today, offering emergency financing to Fannie Mae and Freddie Mac, creating a new regulator for the mortgage titans and setting up a $300 billion fund to help troubled homeowners.
Approved by the Senate in a 72-13 vote, the bill was passed by the House of Representatives on Wednesday and President George W. Bush is expected to sign it promptly.
With foreclosures at record levels, home sales sluggish and property values down, America is in its deepest housing slump since the Great Depression. The crisis will be eased, but not ended by this election-year bill, said housing activists and scholars.
Fears that Fannie Mae and Freddie Mac, the largest US mortgage companies, might collapse rattled global markets earlier this month and lead the Bush administration to call for emergency measures to bolster investor confidence.
Fannie Mae and Freddie Mac recently lost billions of dollars on bad home loans and the stock market has whipsawed their share prices on uncertainty about whether they have enough capital.
The National Community Reinvestment Coalition, an alliance of 600 community investment and development groups, estimated 2.5 million US households will face foreclosure this year.
While Congress' legislation is welcome, the coalition said, it "will likely have little effect on the foreclosure crisis gripping the financial markets and economy".
As private finance has retreated from the mortgage sector, the importance of Fannie Mae and Freddie Mac has grown, and they own or guarantee almost half the country's $12 trillion in outstanding home mortgage debt.
Under a provision put into the bill late in its development at the administration's urging, Fannie and Freddie could draw on a temporary line of US Treasury credit or the government could buy shares in them, if they ran into trouble.
The bill establishes a $300-billion fund under the Federal Housing Administration to help distressed homeowners get more affordable, government-backed mortgages and get out from under exotic mortgages they cannot afford.
The success of the temporary fund will depend on lenders' willingness to accept losses on original loans to shift overstretched borrowers into new loans. An estimated 400,000 families could be helped by the program.
But it would not take effect until October 1st and housing activists said it might not be in full operation until 2009.
Reuters