Apartment Rental News Top Story: H.R. 3221

July 28th, 2008 by Matt DiChiara| Posted in Political Corner | No Comments »

This morning we reported that the Senate had passed H.R. 3221, sending the housing rescue plan to the White House, which is expected to sign the bill into law in short order. Below, we will dig a little deeper into some of the provisions we highlighted.

In order for the housing crisis to bottom out, housing prices need to reach a price that banks are willing to lend at. Thus, credit needs to free up and housing prices need to drop. H.R. 3221 hopes to accomplish this by stabilizing the credit market as well as cutting down on home vacancies by curtailing foreclosures.

The federal government hopes that by providing a back stop and regulator to Fannie and Freddie, whom own or guarantee half the mortgages in the U.S., the mortgage market will be able to function with stability so that banks will continue to lend.

Many people believe that this is most important aspect of the bill. Inman reported earlier today on MIT economic professor William Wheaton’s critique of the bill, who said the market needs more sales, more transactions and a return of liquidity. If Fannie and Freddie were to default, vacant homes would multiply, which would further plunge prices.

In regards to the $300 billion expansion of FHA guarantees, the jury is still out as to whether lenders will be willing to participate in the program. Congress hopes that home prices will bottom out in regions when lenders find it advantageous to enter the program, betting that the houses for which they provide mortgages will eventually foreclose.

However, some, including the White House, are worried that providing another provision in the bill, which would provide $4 billion in block grants to communities hit hard by the crisis, will create an incentive for lenders to let homes go into foreclosure.

A great Q and A regarding the $4 billion block grant can be found here. The questions addressed in the article detail who gets the money, on what basis the funds will be allocated and eligible uses for the funds.

The plan is set to go into action on October 1^st, so officials at HUD and FHA will have a short amount of time to prepare for the overhaul. Hopefully it will bring some stability to the housing market, which has been seen as a main catalyst for other widespread economic woes.

In the meantime, many homeowners are looking for apartments for rent, as they wait for the housing market to reach some kind of stability.

Covered-Bonds Strategy

We must also mention that today Secretary Paulson, whose diplomacy is almost fully responsible for the expedient passage of the bill, announced today that the four large banks, Citi, Bank of America, JPMorgan Chase and Wells Fargo support issuing ‘covered-bonds’ to raise money.

The Treasury Secretary believes that this may be a good way to restore some liquidity to the credit markets while also remaining stable. Instead of securitizing mortgages (dividing them up and including them in different securities sold to investors), covered-bonds would allow investors to buy corporate debt backed up mortgages that the bank retains on their balance sheet, restoring some measure of accountability. This strategy would mitigate the problems caused by the initial Wall Street freak out when it was unclear as to who actually owned all the mortgages that were being foreclosed on.