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Housing Bill Expands FHA's Subprime Relief

Now that President George Bush has signed the housing bill, the hard work of implementing its provisions begins in the midst of a weak market and tight credit conditions.

Treasury secretary Henry Paulson said last week that he expects foreclosures and inventories of unsold homes will remain elevated into next year and home prices are likely to decline further on a nationwide basis.

"I believe we can move through the bulk of the correction in months rather than years," he told financial services executives and lobbyists at the Exchequer Club here.

But to turn the corner, the Treasury secretary says the availability of affordable mortgage financing must be increased.

Under the housing bill, provisions to modernize the Federal Housing Administration mortgage insurance programs will provide borrowers with greater access to FHA-insured mortgages, he said.

The secretary also noted that a special FHA refinancing program in the bill will help some borrowers with "underwater" mortgages.

The secretary and Bush administration officials resisted inclusion of this FHA foreclosure rescue program in the bill. But Department of Housing and Urban Development officials assured Senate Banking Committee chairman Christopher Dodd, D-Conn., last week that the new program will be up by Oct. 1.

The Senate sponsor of the housing bill welcomed this pledge. "I am committed to ensuring that this law is implemented effectively and expeditiously, and that it fulfills its promise to prevent foreclosures, restore home values, stabilize our markets and create economic growth," Sen. Dodd said.

The bill provides the FHA with $300 billion in loan commitment authority to help struggling homeowners avoid foreclosure. However, the program requires lenders to write down the principal and take a loss before the FHA will refinance the loan. The Congressional Budget Office estimates the FHA refi program will tap only $68 billion of its lending authority in assisting 400,000 homeowners.

Meanwhile, the bill (H.R. 3221) provides temporary liquidity and capital backstops for Fannie Mae and Freddie Mac to bolster investor confidence in the two government-sponsored enterprises. Separately, the Federal Reserve has opened its lending window to the GSEs.

"Fannie and Freddie's continued activity is central to the speed with which we emerge from this correction," Sec. Paulson said.

But the bill also strengthens supervision of the GSEs and grants their regulator new powers to set minimum capital requirements and address the risks posed by their $700 billion mortgage investment portfolios.

"We have long sought this result, and our work is far from done. All parties must get to work immediately to begin to address the systemic risk issues posed by the GSEs," Mr. Paulson said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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