27 Jul 2008

US housing rescue bill passed in Senate

8:02 am on 27 July 2008

The US Congress has approved a massive housing market rescue bill, setting up a $US300 billion fund to help thousands of homeowners get cheaper loans.

The measure also provides for more government support for the country's two largest mortgage lenders, Fannie Mae and Freddie Mac.

The Senate approved the measure in a 72-13 vote. It was passed last week by the House of Representatives, and President Bush was expected to sign it promptly.

With foreclosures at record levels, home sales sluggish and property values down, America is in its deepest housing slump since the Great Depression.

The housing crisis is causing serious problems for the wider US economy.

Almost 740,000 US homes entered the foreclosure process in the second quarter of 2008, according to research firm RealtyTrac.

The worst-hit areas were Nevada, California, Florida and Arizona, which had seen the biggest house price rises during the boom years, and the largest volume of sub-prime lending.

The National Community Reinvestment Coalition, an alliance of 600 community investment and development groups, estimated 2.5 million US households will face foreclosure this year.

While Congress' legislation is welcome, the coalition said, it "will likely have little effect on the foreclosure crisis gripping the financial markets and economy."

The bill's Republican critics say it will cost US taxpayers billions, and query the wisdom of bailing out irresponsible homeowners or unscrupulous lenders.

The bill sends about $US4 billion in grants to communities to help them buy and repair foreclosed homes; offers tax breaks to spur home-buying; sets up the first national licensing system for mortgage brokers and loan officers; and raises the limit on the size of mortgages that federal agencies can guarantee.

President Bush had initially threatened to veto the bill over the provision community grants to buy repossessed homes.

Fannie Mae and Freddie Mac recently lost billions of dollars on bad home loans and their share prices have plummeted on uncertainty about whether they have enough capital.