the VOA Special English Economics Report
week, the United States Congress approved a major housing bill. President
George Bush signed it into law on Wednesday.
could help an estimated four hundred thousand homeowners late in their payments
and in danger of losing their homes.
government will guarantee up to three hundred billion dollars in lower-cost
refinancing of loans. In return, lenders must agree to forgive part of the
experts say as many as three million owners are in trouble. With falling
prices, many people owe more than their homes are worth.
The new law also includes help for the mortgage finance
companies Fannie Mae and Freddie Mac. They guarantee or own almost half of the
nation's twelve trillion dollars in housing debt.
They buy high quality loans but have also invested in
risky mortgages. In recent months they have reported eleven billion dollars in
losses, and their stock prices have collapsed.
created the Federal National Mortgage Association, or Fannie Mae, in nineteen
thirty-eight. In sixty-eight it became a shareholder-owned company financed
with private capital. Then Congress created a competitor: the Federal Home Loan
Mortgage Association, or Freddie Mac.
Fannie Mae and the smaller Freddie Mac buy loans from
banks and other lenders, then sell them as securities to investors worldwide.
This secondary market provides money for lenders to make new loans.
Now, few investors are interested in mortgage-backed
securities without government guarantees.
Investors always believed that if Fannie and Freddie
needed help, the government would intervene. Now, it has. The new law lets the
Treasury, until the end of next year, offer them unlimited credit and even buy their
Some critics say Fannie and Freddie should be replaced by
truly private companies. Their government connection has lowered their
borrowing costs. But many economists say homeowners get little of that savings.
And critics have deplored their spending on political campaigns, lobbying
activities, and pay for their executives.
The plan does create new supervision over both companies.
The Congressional Budget Office says the rescue plan
could cost taxpayers twenty-five billion dollars. But it also says there is
probably better than a fifty percent chance that no money will be needed.
And that's the VOA Special English Economics Report,
written by Mario Ritter. I'm Steve Ember.