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New Law To Save Mortgage Giants And Regulate Credit

Published 07/26/08 Jeff Bennett - Print Article
E-mail - editor@economyincisis.org

After opposition from President Bush to endorse a bill to bailout Fannie Mae and Freddie Mac, Bush gave in signing to protect the companies and provide $4 billion in grants for local governments, according to The International Herald Tribune.

The future law will allocate hundreds of billions of dollars for the Treasury to protect the mortgage giants, if needed. The law may restore some much needed confidence in the economy and help stop future foreclosures. It also creates new rules for credit lending to first-time buyers and an independent government agency to oversee mortgage companies.

This law may create much needed help for the mortgage giants or be a check too big for the government to cash. It is unknown how the Treasury can shore-up the assets to cover the $5 trillion in loans owned by Fannie and Freddie; more than half of the nation's $9.5 trillion debt. However, the law may help stop future predatory lending and keep credit limits in check.

Source International Herald Tribune:

The House approved the bill by a vote of 272 to 152, and Bush's support assures that the bill will become law after final passage by the Senate, possibly Friday or Saturday.

Lawmakers and specialists described the legislation as a landmark shift in the government's role in the housing market, extending a generous helping hand both to Wall Street and Main Street that would rank in importance with the creation of the Home Owners' Loan Corporation to prevent foreclosures as part of the New Deal, and the legislation in 1989 response to the savings and loan crisis.

…

But the legislation, much of which has been debated and fretted over on Capital Hill for months, leaves numerous unanswered questions, perhaps the biggest being whether it will be sufficient to slow the downward spiral of home prices and help the economy recover from what many experts now expect to be a prolonged slowdown.

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