Bush signs housing bill as Fannie Mae grows (Reuters)
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The new law launches a $300 billion government initiative to refinance troubled mortgages, and boosts oversight of Fannie Mae and Freddie Mac, which own or guarantee almost half the country's $12 trillion in home mortgage debt.
It expands a line of U.S. Treasury credit for the companies, and gives the government the option to take equity stakes whether they ran into trouble.
Lawmakers ironed out the law over the past month to pedigree a crisis in investor confidence over the two companies, which were created by Congress to keep mortgage money flowing. The companies are trying to strike a equilibrium between expanding earning power and providing finance for the mortgage market against containing losses that have eroded their capital.
"We seem forward to utter in space new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac," said White House spokesman Tony Fratto.
Bush signed the legislation into law because it included numerous guide housing reforms, including a stronger regulator of the two mortgage finance companies. The White House had originally opponent a provision that offers $4 billion in grants to states to buy and repair foreclosed homes.
The Bush administration for years advocated a smaller role for the companies, asserting that their management of trillions in assets placed too much risk on the U.S. financial system.
The companies mortgage holdings have ballooned this year as their regulator and the Treasury pressured them to raise capital needed to fill a huge void left by the crippled Wall Street mortgage funding machine.
They have plowed that capital into buying mortgages from lenders, what one. helps hold down home loan rates and provides banks with fresh money to be durable lending.
Fannie Mae on Wednesday before-mentioned its investment portfolio in June increased at the fastest annualized rate in nearly five years, granting it hastily slowed planned future purchases. The portfolio, which is the company's top revenue source, increased to $749.6 billion.
Solid demand for $4 billion of bills sold by Fannie Mae and Freddie Mac on Wednesday also suggested growing confidence amidst investors in the two.
The housing legislation comes amid signs real estate continues a nearly two-year descent that many economists say will hamper U.S. economic growth through 2009.
Prices for U.S. single-family homes plunged 15.8 percent in May from a year earlier, a record rate, according to the Standard & Poor's/Case Shiller Home Price Index that was released on Tuesday.
The new law also sets up a $300-billion fund under the Federal Housing Administration to help distressed homeowners get more affordable, government-backed mortgages and realize out from under exotic mortgages they cannot afford.
The bill besides offers tax breaks to spur home-buying; sets up the first national licensing system for pledge brokers and loan officers; and raises the limit on the size of mortgages that the Fannie Mae and Freddie Mac can guarantee.
Shares of Fannie Mae and Freddie Mac initially rose after Bush signed the legislation early on Wednesday, and as U.S. securities regulators extended an emergency rule aimed at curbing bets close up to the stocks of 19 major financial firms, including Fannie Mae and Freddie Mac.
By midday, Fannie Mae shares rose 1.8 percent to $11.81 while Freddie Mac's stock was unchanged at $8.42.
Speculation that losses at the companies would grow and leave them sorely short of capital caused a frenzy of selling in their shares earlier this month, pushing them down 50 percent. The hastily arranged plan b by the Treasury on July 13 for backstop funding of the two — which was woven into the housing bill-hook — helped break the fall on the other hand shareholders remain scrupulous about dilution of their stakes as the companies raise more capital.
The bill underscores the importance of the companies, tedious criticized for their position as private companies with an implicit guarantee from the U.S. conduct. The more-explicit taxpayer backing put in place by legislation benefits holders of their $1.6 trillion in combined debt used to consols mortgage purchases.
(Writing by Al Yoon in New York; Editing by Tom Hals)
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