Bush Signs Measure for Homeowners, Fannie, Freddie

By Roger Runningen

July 30 (Bloomberg) -- President George W. Bush signed into law legislation that helps 400,000 homeowners facing foreclosure and extends a lifeline to Fannie Mae and Freddie Mac.

Bush signed the measure at the White House shortly after 7 a.m., spokesman Tony Fratto said. Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and Federal Housing Administration Director Brian Montgomery were among those present.

``We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac,'' Fratto said.

The law is aimed at stemming foreclosures and halting a free-fall in housing prices by providing federal insurance for refinanced 30-year mortgages for homeowners struggling to make their monthly payments.

The measure also is designed to restore confidence in Fannie Mae and Freddie Mac by tightening regulations and authorizing the Treasury secretary to inject capital into the two biggest U.S. providers of mortgage money.

The measure passed the Senate July 26 and the House three days earlier.

The recession in the housing market, the worst since the Depression, along with higher fuel prices and a shrinking job market, is weighing on consumers and the economy.

The White House Office of Management and Budget this week cut its February forecast for economic growth this year to 1.6 percent from 2.7 percent. The OMB said it expected the economy to expand 2.2 percent next year, compared with its earlier forecast of 3 percent growth.

Lead Lobbyist

The foreclosure-prevention measure, unveiled in March, was bolstered after Paulson sought and received temporary authority, through Dec. 31, 2009, to lend money or to buy the stock of Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac. The goal is to avert a collapse of the companies that buy or finance almost half of the $12 trillion of U.S. mortgages.

The Treasury chief, who was the lead lobbyist for the White House, persuaded Bush to back off a threatened veto over a section of the legislation that provides $3.9 billion in grants to states to buy and repair foreclosed properties. Bush said he regarded it as a bailout of lenders. Democrats said it would stabilize neighborhoods.

New Regulator

The law creates a new, independent regulator called the Federal Housing Finance Agency. It would ensure that Fannie Mae and Freddie Mac adhere to minimum capital requirements, limit the size of portfolios and oversee executive pay for the two government-sponsored enterprises.

Under the law, the FHA can now insure higher loan limits, up to $625,500 from $417,000 in high-cost areas. The law also raises the nation's debt limit to $10.6 trillion from $9.816 trillion to accommodate the Paulson plan.

A new FHA program, a unit of the U.S. Department of Housing and Urban Development, would insure up to $300 billion in refinanced 30-year fixed loans for about 400,000 borrowers struggling with their monthly payments after loan holders agree to cut their mortgage balance.

HUD Secretary Preston expressed misgivings when asked in a Bloomberg TV interview if he was confident that money for the program would be spent effectively with no loss to the taxpayer.

``No, I'm not,'' Preston said. ``Roughly a third of the people who get this assistance will end up in foreclosure,'' he said, citing Congress' own estimates, ``and many more, we believe, will be chronic delinquencies.''

The measure would offer $15 billion in tax breaks, including provisions offering the equivalent of interest-free loans worth up to $7,500 for first-time homebuyers. States would be able to offer an additional $11 billion in mortgage revenue bonds to refinance subprime loans.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net;