Bush Signs Housing Relief Package

Paul Kiesel

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President Bush finally signed into law this morning the housing relief bill that seemed, until two weeks ago, as if it wouldn't get signed (see the President's comments from last week), after months of effort by its co-authors, Senators Chris Dodd and Richard Shelby and Congressman Barney Frank, to get the legislation passed.

Congress approved the bill last week and at around 7 a.m., in the Oval Office, Bush took to signing a bill that is filled with many provisions he opposes.

Congressional proponents of the bill deem this the most aggressive government intervention into the housing market, when it is needed most, since the New Deal, however, no members of Congress were invited to the signing; it would appear, due to the months of opposition to the bill and that none of the bill's co-authors (Dodd, Shelby or Frank) were present when the President signed it, that the signing of the housing package is bittersweet for Bush.

Bush could no longer argue not signing the bill because it also aims to help Fannie Mae and Freddie Mac, the two-headed giants of the mortgage industry, as both companies own or guarantee over half of the $12 trillion worth of the nation's mortgages. Since Treasury Secretary Paulson and Fed chairman Bernanke said two weeks ago that Fannie and Freddie needed financial backing, the two government sponsored entities (GSEs) were subsequently added to the housing bill with a high rise ceiling on what they could borrow from the government (very close to a blank check from the Fed). Therefore, Bush was pushed into an uncomfortable corner and was forced to sign a bill he mostly criticized for the last four months. (However, his Hope Now program provided only a scintilla of relief to an increasing housing declivity and foreclosure crescendo, so his arguments against the housing bill were weakening by the day anyway before he agreed to sign off on it two weeks ago.)

Housing Bill Concerns

According to the New York Times, there is much trepidation by many economists and experts as this housing legislation now becomes effective. "Some experts have said that the law was wrong-headed in its effort to retain the hybrid nature of the mortgage finance giants [Fannie and Freddie] which are private companies with publicly traded stock [. . .] an arrangement that critics say privatizes the profits and socializes the risk and any losses," (New York Times, 7/30/08).

Also, the former comptroller general of the United States and head of the Government Accountability Office, David M. Walker, said in an interview earlier this week that Bush, "might have been unwise to sign the measure," and that," providing authority to the secretary of the Treasury to extend credit or to buy stock is one that will end up costing the taxpayers tens of billions of dollars [. . .] The way this is structured, it's only a matter of how much the taxpayers are going to lose."

Chris Dodd, Richard Shelby, and Barney Frank believe that the law represents the best way to help stabilize the housing market, potentially putting a solid floor under declining prices. Democratic presidential nominee Barack Obama, reiterated the same sentiments with Tom Brokaw on Sunday, "[. . .] What we need is a floor in the housing market, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting."

It'll take a couple months to see how well this bill addresses the housing/foreclosure problem, but more importantly, it'll be interesting to see how accommodating lenders are in renegotiating mortgages, something they'll have to do in order for this bill to do what it's supporters hope it can provide: much needed relief -- a floor -- to the troubled housing and mortgage markets.