Wednesday, July 30, 2008

The Housing Bill

by Osman Parvez
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Today, you're no doubt hearing that President Bush signed the housing bailout bill into law.

I have mixed feelings. On one hand, institutions that backstop half of the nation's mortgages are at risk for collapse. On the other, markets tend to work better without government manipulation, even when the efforts are to protect institutions supposedly "too big to fail." Ultimately, it's the taxpayers who foot the bill and from what I've read, this one is a blank check - limited only by the new national debt ceiling.

In addition to helping prop up Fanny and Freddy, the bill includes a provision to provide government insured loans to refinance homeowners with distressed mortgages. According to the NYT, the law authorizes up to $300 billion across 400,000 loans. That math works out to to $750,000 per loan, way above the median price in most markets, and so doesn't make sense. There's also $4 billion in the bill for grants to local governments to buy and fix foreclosed homes. Together, these might help shore up a bottom for declining former bubble markets.

Boulder's market is unlikely to see much impact from the new legislation, save that Fanny and Freddy will continue to function and mortgage rates will hopefully remain stable. Without the GSE's, we'd have to rewind the clock on the mortgage system and to historical rates that were much higher than today. As far as money for foreclosures or refinanced loans, some homeowners might benefit but the reality is that we're not that distressed in the City of Boulder. Areas where foreclosure rates are much higher, such as Longmont could see greater benefit. I suspect there will be a deluge of marketing from mortgage companies looking to earn commissions by refinancing distressed borrowers into the new government loans. Get ready for an advertising blitz.

Image: Office of the Clerk

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