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Posted on 16 Oct 2008

The housing bill basically represents a temporary lifeline for mortgage companies Fannie Mae and Freddie Mac and relief for 400,000 homeowners in mortgage distress. All in all, there is about $15 billion in housing tax breaks. Here is the bill - in a nutshell.

Treasury is authorized to spend billions of dollars on mortgage giants Fannie Mae and Freddie Mac in the event of their financial demise. Combined, these two companies hold almost half of the mortgages in the country, to a tune of $12 trillion. In return, the government can buy shares in the two companies, and Federal Reserve watchdogs are being authorized to ensure responsible lending practices are adhered to. Among other provisions, lenders must clearly make borrowers aware of the terms of their mortgage and how high their payment could be.

The housing law includes a plan to assist up to 400,000 homeowners replace their high interest mortgages with affordable government-insured loans. The success of this program rests on the lenders who must take a loss and reduce the mortgage principal before refinancing.

The Federal Housing Administration has been budgeted $300 billion to insure these loans, even though it's predicted that only $68 billion will be used. Similar to a home warranty loan, the original lenders pay fees into a fund, and homeowners pay annual insurance premiums totaling 1.5 percent as a buffer in the case of loss of income. In spite of this lifesaver, it's estimated that thirty-five percent of the loans will end up in default.

First-home buyers will be eligible for a credit of up to $7,500 if they purchased a home between April 9, 2008, and July 1, 2009. A $500-$1,000 deduction on 2008 property taxes will be available for those who don't itemize their taxes. Also included are $4 billion grants to local governments to purchase and renovate foreclosed properties. This was a provision the White House wanted removed, claiming it helped lenders more than homeowners.

All these perks don't come cheap - the new housing bill will result in the national debt ceiling being increased from $800 billion to $10.6 trillion. Maybe not now, but down the road someone has to pay for this...

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