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WASHINGTON: The US Congress has passed a set of laws designed to ensure the financial future of America's two mortgage giants, Fannie Mae and Freddie Mac, which own or guarantee almost half of the US mortgage market.
Confidence has been rocked in recent weeks by worries about the companies' exposure to the US housing crisis.
The new laws will enable Fannie Mae and Freddie Mac to borrow even more money from the government at low rates, should they need it. They will also give the US government the power to buy stocks in the two mortgage firms.
David John, Heritage Foundation, said: "What this does is to signal that one particular portion of the mortgage market – Fannie Mae and Freddie Mac – that have produced all of the bonds that people have bought across the world will not be allowed to fail."
This legislation will throw a lifeline to people facing foreclosure by offering them a lower 30-year fixed rate mortgage from the government. Part of the cost will be covered by the original loan company.
The laws will also provide extra tax incentives for new homebuyers and grants for communities to buy foreclosed properties.
US Senator Chris Dodd said: "As some have said, this is the most important piece of housing legislation in a generation. So we believe that it will send not only the important specific signals, but also the broader ones - and that is that we have our arms around this problem."
The crisis has shone a spotlight on Fannie Mae and Freddie Mac, which control almost half of the US$12 trillion mortgage market.
Critics said the two companies have operated with a tiny cash cushion to deal with financial uncertainties. The new legislation will bring in a new regulator to deal with such issues.
Mr John said: "The long-term effect of today's crisis may well be that we recognise in the United States that this structure cannot be allowed to persist, and there will be some change in that structure made.
"But this will not affect the value of the underlying bonds. The underlying bonds will continue to be the same kind of investment that they always have been."
US President George W Bush has said that he will sign the housing rescue package, despite opposing aspects of the bill.
Congressional analysts have estimated the cost of the bill to be US$25 billion. Economists said that is the price of delivering greater stability and reassurance at a time of high anxiety for the US economy.
- CNA/so
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