Will the housing bill save America?

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The Housing and Economic Recovery Act of 2008 is headed for President Bush’s desk. He’s planning to sign it. Will it stop the housing crash in its tracks and avert recession? Probably not. Will it keep things from getting worse than they otherwise would? Probably. Is it full of lots of junk that won’t do much good at all? Almost certainly. Will it be the last major legislation aimed at dealing with our current housing/financial crisis? Almost certainly not.

After a convoluted voyage from the House to the Senate to the House to the Senate to the House to the Senate, the bill totaled 694 pages. (Seriously, you can download it for yourself.)

The bill started life as a plan, dreamed up by Democrats Barney Frank and Chris Dodd, to use up to $300 billion in Federal Housing Administration guarantees to lure lenders into renegotiating troubled mortgage loans. Actually, that’s not quite right. H.R. 3221 started life last summer as the New Direction for Energy Independence, National Security, and Consumer Protection Act. Its functions got folded into omnibus energy legislation signed into law by the president in December, but Senate leaders decided in April to replace the text of the bill–which had already been approved by both the House and Senate, and thus could bypass pesky committee hearings–with legislation to “modernize” the FHA. Then, in May, the House added the mortgage renegotiation plan and legislation to create a new, stronger regulator of Fannie Mae and Freddie Mac, among some other things. Then the Senate okayed the bill again with some changes of its own on July 11.

Then came the Fannie-Freddie scare, the declarations by the Fed and Treasury that they would back the two mortgage lenders up if things got worse, and the need for Congressional action to back up Treasury’s promise. Which brings us to the giant of a bill that the House passed last Wednesday and the Senate Saturday morning. It gives Treasury permission to back Fannie and Freddie with a line of credit restricted only by the overall U.S. debt limit, and to take equity stakes in the companies if necessary. It creates a new, more powerful regulator for the two companies. It puts up to $300 billion in FHA backing behind an ambitious mortgage-renegotiation plan. It gives local governments $4 billion to buy up foreclosed properties. It gives many first-time homebuyers a $7,500 tax break. That, and a bunch of other stuff too.

The one part of the bill I’ve spent much time looking at–the Dodd-Frank FHA-mortgage-renegotiation plan–appears to be a pretty reasonable effort to balance the needs of taxpayers, struggling homeowners, and mortgage lenders. The lenders do seem to get the best of the deal, but the whole point is to lure them into restructuring loans that they would otherwise foreclose upon, so that was probably inevitable. The bigger issue may be that it could take months and months just to get the program up and running.

Then there’s the Fannie-Freddie backstop. Whatever their flaws, the two government-sponsored enterprises are for the moment about the only things keeping the mortgage market going. Something had to be done to help them. But even the promise of massive taxpayer aid wasn’t enough to keep interest rates on the mortgages they buy from rising sharply.

To sum up: 694 pages. Multiple major spending and regulatory initiatives. Doubts about when they’ll actually take effect, and how much impact they’ll have. No clear vision of what the future of housing and financial regulation in this country is going to look like. This legislation is but a muddled beginning.