Bush Signs Sweeping Housing Bill into Law
President Bush signed a massive housing and mortgage relief bill into law early Wednesday morning, the White House said, making official changes ranging from a $300 billion expansion of the underwriting authority of the Federal Housing Administration to a new regulator for twin mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE). Click here for a complete overview of the legislation. The new regulator, called Federal Housing Finance Agency, will replace the Office of Federal Housing Enterprise Oversight and be managed by former OFHEO director James Lockhart; on Wednesday, Lockhart praised the Bush administration for passing the bill, saying it provided "all the authorities necessary to oversee vital components of our country’s secondary mortgage markets ... at a very challenging time." "I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing, and operate safely and soundly," he said in a press statement released by the newly-minted FHFA. Treasury secretary Henry Paulson was on hand shortly before 7 a.m. in the Oval Office to attend the signing, which occurred without the public ceremony that usually accompanies the Presidential signing of a large new bill into law. The bill provides the Treasury historic authority to backstop both ailing GSEs, including an unlimited expansion of a preexisting $2.25 billion credit line to both Fannie and Freddie. The government also has the authority to purchase shares in one or both GSEs, if needed. The Bush administration had originally balked at provisions that would allocate $4 billion to local governments to fund the purchase of foreclosed properties in some of the nation's hardest-hit neighborhoods, calling the plan to do so a bail out of lenders and investors. A veto threat centered around the provisions quickly dissolved, however, when both GSEs ran aground in the stock market roughly three weeks ago over liquidity concerns and Paulson proposed emergency authority for the Treasury to backstop both Fannie and Freddie--authority to be used only if needed, officials have repeatedly stressed. HUD officials change tune After suggesting to the press earlier in the week that provisions surrounding a $300 billion expansion of the FHA's underwriting authority for refinancing troubled mortgages wouldn't be ready until next year, officials at the U.S. Department of Housing and Urban Development now say they'll be ready by the October 1 effective date written into the new law. The suggestion that underwriting criteria for the so-called HOPE for Homeowners program wouldn't be available by the bill's effective date clearly irked key members of Congress, including House Financial Services Committee chairman Barney Frank (D-MA) and Senate Banking Committee chairman Christopher J. Dodd (D-CT). "The notion that this takes a normal bureaucratic response when you have this social and economic crisis is unacceptable. … that would be incompetence bordering on malfeasance," he said in an interview with American Banker on Friday. "I cannot believe that this would wait." For his part, Dodd held a closed-door meeting with HUD officials on Monday, who reassured the Senator that the new program will be in place by the prescribed date. He said that HUD secretary Steve Preston had said the agency "will ... blow through their process." "They're all very confident they are going to be able to do that by Oct. 1," Dodd told the Hartford Courant on Wedensday. Frank has called on servicers to place a voluntary moratorium on foreclosure activity until the provisions of the Hope for Homeowners program take effect. "I would hope that no one would be foreclosed upon between now and October 1st who would have qualified for this program had the effective date been immediate," Frank said in remarks during a committee hearing. "I think it would be a shame, an embarrassment to all of us if people were to lose their homes and the neighborhood deterioration were to be advanced and the economy would suffer because to satisfy CBO and other rules, we delayed this a couple of months." The end of the DAP era The bill also eliminates controversial seller-funded down payment assistance programs, also called DAP by industry participants. Seller-funded downpayment assistance programs allowed property sellers, including largely home builders, to donate funds to a non-profit agency, which then "gifted" the funds to a borrower as a down payment on a new home. The non-profits made a tidy processing fee, while critics — and even government agencies such as the IRS — have for years blasted the practice as a legalized scam. The new bill effectively bans the programs, which not surprisingly led the executives that ran companies that managed funds under the auspices of DAP to decry their fate. "It is a sad day for America when our elected officials pledge their allegiance not to the hardworking families who drive this country, but to bailing out special interests and Wall Street firms who in fact created this housing crisis," said Scott Syphax, CEO of the Nehemiah Corporation of America, one of the nation's largest providers of down payment assistance. His company will likely be put out of business by the provisions of the new law. In early June, FHA commissioner Brian Montgomery said that bad loans from DAP programs threatened the Depression-era agency's future. "Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments," Montgomery said. Such loans are currently one-third of the government agency’s portfolio, he added, and led the agency to book an additional $4.6 billion in unanticipated long-term losses in an annual re-estimate. "No insurance company can sustain that amount of additional costs year after year," he argued. Now, the FHA no longer has to. Disclosure: The author was long FRE, and held no other relevant positions, when this story was published; other indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.