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Commentary on the Housing Market as of 08/01/08
by Peter L. Zachary, MAI, MRICS

"Congress Sends Housing Relief Bill to President" was the headline on page 14 of the July 27, 2008 New York Times National Report. The article stated that the Senate approved a package of legislation that includes a program to save hundreds of families from losing their homes to foreclosure. The Times states that "the bill grants the Treasury Department broad authority to safeguard the nations two mortgage finance grants, Fannie Mae and Freddie Mac, potentially by spending tens of billions of dollars in federal money to prevent the collapse of the companies, which own or guarantee nearly half of the nations $12 trillion in mortgages". Further, The Times states that: "to accommodate the rescue plan for the mortgage companies, the bill raises the national debt ceiling to 10.6 trillion, an increase of $800 billion and the first time that the limit on the government credit card has grown to 14 digits". "This bill is known as HR 3221 Federal Housing Finance Regulatory Reform Act. A summary of HR 3221, prepared by the Appraisal Institute appeared on their 07/31/08 Appraiser News Online (Volume 9, No 13/14). It is very comprehensive and will help many people. It is basically the federalization of the residential mortgage market. Summary of HR 3221.

I'm sure the provisions of this Act will be cumbersome and time consuming to people who are buying or refinancing their homes. And probably when the reality of this legislation is fully understood and experienced by consumers, I believe, another free market mechanism will be created to give consumers the freedom to obtain a loan without "the constraints of a federal bureaucracy".

On June 18, 2008, six weeks before President Bush signed HR 3221, the Wall Street Journal reported that Treasury Secretary Paulson, Federal Reserve Chairman Bernanke and FDIC Chairwomen Bair are spearheading the effort to create a legal and regulatory framework for mortgage covered bonds. A mortgage covered bond, which is sold to investors in return for an interest rate return where the money is used to invest in mortgages that banks keep on their books. Investor perception of the safety of a covered bond is enhaced because the bank retains the mortgages and services them in-house.

In my opinion, this may be the private section's way to once again become active in the mortgage business.

More to come as it appears in the newspaper and the Internet.

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