Will the Housing Rescue bill of 2008 help?

Recently, Congress passed and President Bush signed the Housing Rescue Bill of 2008. On the post of July 26, 2008, I listed the highlights of the bill. Now, I want to take this opportunity to offer my views on it.

It's most prominent feature is the one allowing homeowners in distress not only the ability to refinance their loan, but also at a better rate and for a lower loan amount. This will be a win-win situation all the way around. The owner will be able to refinance to an affordable loan, the lender will have to cut the loan amount by approximately 15%, but the loss incurred will be a lot less than if it foreclosed on the loan. Finally, the neighborhood will benefit because this'll mean one less house to fall into disrepair and to add blight to the neighborhood.

The 3.9 billion dollars that will be provided to neighborhoods to buy foreclosed homes, fix them up and sell them should help neighborhoods which are already inundated with blight caused by massive amounts of foreclosures in certain areas. What I think might cause problems is the distribution. How will they decide who to give the money to? We'll have to wait and see how this is handled. It could turn out to be a godsend or a nightmare.

As far as helping out Freddie Mac and Fannie Mae, the jury is still out. Sure, they are so big that if they were to fail, they could cause a collapse of the housing market, but they are not a government entity and they have taken advantage of the implicit guarantee by the government to pass on as high grade bonds what were really junk bonds. I say, if the government is going to implicitly guarantee their investments they should subject them to a lot more regulation. They should carry the same reserves as banks. This should greatly reduce their chance of failing.

Last but not least, it's great that the bill will offer a $7500 tax credit to first time homebuyers. This should help get the housing market jumpstarted.