There was big news for the housing industry from Capitol Hill this week, as the Senate Banking Committee passed “The Federal Housing Finance Regulatory Reform Act of 2008” by a vote of 19-2.
We have been following the development of this legislation in our past Apartment Rental News Weekly Roundups. Tracking housing legislation during an election year is as confusing a task as following a David Lynch movie. Thanks are in order for Matt Carter over at Inman News, for all his help.
Housing legislation had stalled after the White House had threatened to veto a similar bill proposed in the House, H.R. 5380. That bill was subsequently rolled into H.R. 3221, which closely resembles the Senate bill (now under discussion) that made it out of committee earlier this week.
Republicans balked at the idea of a making $300 billion in at-risk mortgages eligible for guarantee by the Federal Housing Authority, citing concerns over taxpayers absorbing the cost of what some have called a bailout of irresponsible lenders and homeowners.
To get Republicans on board, Senators Chris Dodd (D-CT) and Richard Shelby (R-AL) modeled Senate legislation after the recently passed House Resolution 3221, which not only includes an expansion of FHA guaranteed loans proposed in HR 5380, but also introduces stronger regulation of Freddie Mac and Fannie Mae, which Republicans had been calling for since an accounting scandal five years ago.
The real sticking point for Senate Republicans and the White House, however, was the source of funding for the plan, estimated by Dodd to cost around $500 million (the Congressional Budget Office puts the price tag at $1.7 billion.) The deal was clinched upon the agreement that the cost will be paid for by a tax imposed on Fannie Mae and Freddie Mac that was originally earmarked for the creation of an affordable housing trust fund.
- Lenders who want to participate must write down their loans to a 30 year mortgage valued at no more than 90% of the appraised value of the home and pay an initial fee to participate.
- Borrowers are required to have a mortgage debt-to-income ratio of 35% and will pay an annual fee to their new guarantor, the FHA.
- Fannie Mae and Freddie Mac will fund the costs by contributing 1.2 basis points on all outstanding loans.
Questions Still Loom
Questions regarding the motivation, efficacy and wisdom of a federal housing rescue program have been raised, but are unlikely to derail legislation due to the widespread news coverage of the housing crisis and political expediency of dealing with such an issue in a huge election year.
AngryRenter.com has been a vocal opponent of what they allege to be a bailout for homeowners and lenders and has leveraged an ethical charge against the bill. Why should taxpayers help to bail out a reckless housing industry?
Other voices, mostly from the Wall Street Journal’s Opinion pages, have called into question the prudence of government involvement. If the housing crisis was the result of an overvaluation bubble, is a stimulus necessary?
The subprime mortgage crisis had, at one time threatened to engulf the financial services industry because it was unclear as to who actually owned which mortgages; now that the stability of the financial system is intact, is there anything wrong with a 20%-off housing sale?
Lastly, upon a closer examination of the House version, funds originally designated to for a low income housing program, (from the 1.2 basis point fee on Fannie and Freddie) would be diverted to pay for the new measure. Moreover, these funds were aimed at helping folks in Louisiana and Mississippi who lost their homes in Hurricanes Katrina and Rita. Perhaps a reexamination of what actually constitutes a crisis is in order.
Implications for Apartment Rental Market
The rescue plan should help the housing industry as a whole, says National Home Builder CEO Jerry Howard, as developers should find it easier to find capital for new projects. Corrobarating this sentiment is BusinessWeek, whose article identifies how the housing bust has adversely affected the rental market.
We’ll be keeping our eyes on this piece of legislation over the next few weeks.
Let us know what you think about the new Housing plan from Congress.