July 30, 2008 – President Bush signed into a law that is intended to help rescue the beleaguered housing market in the United States today. The new housing law has two main objectives as it offers more affordable mortgages to homeowners at risk of foreclosure and also seeks to stabilize the country’s two largest mortgage finance companies, Fannie Mae and Freddie Mac.
The law sets up a $300 billion fund to help distressed homeowners get more affordable loans that will be backed by the government. The Federal Housing Administration will manage these funds and be allowed to insure up to the $300 billion amount in new, 30-year fixed rate mortgages for borrowers who are currently at risk. This provision will allow the FHA to back the new loans if the current lenders agree to write down loan balances to 90% of current appraised value.
The law also has higher limits on mortgages that Fannie Mae and Freddie Mac can guarantee. This limit will go to a maximum of $625,500 from its current $417,000. Additionally, the law will require greater oversight of these two companies, which are considered government sponsored entities. A late and somewhat controversial addition to the new housing law provides temporary authority for the Treasury to lend a financial hand to Fannie Mae and Freddie Mac if the Treasury deems it necessary to help stabilize markets.
Another incentive in the law includes tax breaks to help home-buyers. A tax refund of up to 10% of purchase price, but no more than $7,500 will be available for first time home buyers. This refund, though, will have to be paid back, interest free, over 15 years in equal installments.
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