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Housing GSEs Receive New Support, a Strong Regulator
To help stabilize today’s struggling housing and financial markets, H.R. 3221, the Housing and Economic Recovery Act of 2008, contains important provisions to bolster the housing government-sponsored enterprises (GSEs) — Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
“Continued federal government support of America's housing finance system through the GSEs is essential to our nation's housing policy and must be maintained,” said NAHB President Sandy Dunn. “H.R. 3221 provides a strong, new regulator for these vital institutions that will also be responsible for ensuring that they successfully continue their critical housing mission to reduce the cost of housing credit and improve affordable homeownership and rental housing opportunities.”
At a time of declining confidence in the nation’s financial markets, H.R. 3221 will strengthen and safeguard the financial health of the GSEs while also preserving their vital housing mission.
Fannie Mae and Freddie Mac play a primary role in federal housing policy and serve as the main engine of mortgage lending in the U.S. They own or guarantee about $5 trillion of the nation’s home loans, or nearly half of all home mortgage debt outstanding. For mortgages taken out this year, their share is two-thirds.
The measure will establish a strong, independent regulator that will have enhanced authority to establish capital standards and take corrective actions if the GSEs are undercapitalized. The new director will oversee, and can directly restrict, executive compensation at Fannie Mae and Freddie Mac.
The bill includes provisions authorizing the Department of the Treasury to purchase debt or equity obligations of the GSEs. This provides an open-ended increase in the relatively small lines of credit the GSEs currently have with the Treasury and provides a safety valve to access additional equity capital. This authority will expire at the end of 2009. The temporary Treasury support measures are accompanied by a requirement for the new regulator to consult with the Federal Reserve before undertaking any actions related to safety and soundness. This requirement also sunsets at the end of next year.
The legislation will allow GSE loans of 115% of the local area median home price up to $625,500. This will help buyers seeking homes in high-priced markets such as California and the Northeast.
The bill also creates a new permanent affordable housing fund to be financed by the GSEs. The fund will be used to finance the construction, maintenance and preservation of affordable rental housing projects in both rural and urban areas nationwide.
Portions of this fund will be diverted during the first three years to pay for the new FHA foreclosure relief package within the legislation.
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