NEW HOUSING BILL BASICS & WHAT TO LOOK OUT FOR 3

The New Housing Bill authorizes Fannie Mae & Freddie Mac to take on mortgages at higher amounts, from the present cap of $417 thousand to the higher level of $625 thousand. Ostensibly, this will enlarge the market for housing and hopefully pull the housing industry out of the doldrums.

The Bill also authorizes the Treasury to extend an unlimited line of credit to Fannie Mae & Freddie Mac (which already own or back more than $5 trillion in mortgages) and to purchase stocks in these GSEs, if necessary. These will be increasing the debt exposure of Fannie Mae & Freddie Mac. The fervent hope is, with the learnings from the subprime cirsis, better risks will populate the increase.

The fly in the ointment: Fannie Mae & Freddie Mac are backed by taxes –which backing has been increased by the New Housing Bill. If Fannie & Freddie Mac are hit by another financial tsunami, taxpayers will be saddled with the losses.

info from FHA website, images from Microsoft Clipart