August 1, 2008

Fannie, Freddie and the Housing Bill

The Housing and Economic Recovery Act of 2008 was passed by Congress and signed by President Bush. In other words, it is now the law of the land. Some are happy about this; some are not so happy about this. Many have mixed feelings (see Brian’s post for some of these opinions.) But whatever you feel about this bill, it is going to be referred to often in the coming months. And here at Redfin we will be writing about what effect, good or bad, this bill has on the housing market and the economy-at-large. That said, having a working knowledge of what is in the bill is useful.

Here is a summary of how the Housing and Economic Recovery Act of 2008 will change the way Fannie Mae and Freddie Mac operate:

• Permanently increases the mortgage loan amount that Fannie Mae and Freddie Mac can provide for homes (and FHA can insure) in high-priced areas, such as Orange County, to $625,000; also, allows for buying and insuring loans 15% higher than the median home price in some cities
• Provides new controls and a new regulator for Fannie and Freddie. For example, the regulator will be able to approve the pay packages for Fannie and Freddie execs, which is currently over $1M for some of the top execs at these companies.
• Allows the Treasury Department to temporarily (until December 31,2009) lend money to or buy securities from Fannie and Freddie. The reasoning for this was to prevent the collapse of the these two organizations. The reasoning continues that these organizations currently own or back a near majority of U.S. home loans and, therefore, the collapse of these either of these two would lead to even harsher economic conditions than we are currently experiencing.
• Creates an affordable rental housing fund that will be funded from the profits of Fannie and Freddie

Tomorrow: The Housing and Economic Recovery Act of 2008 and changes to the FHA