Housing Bill Sparks Concern Among Economists

The markets have been giving mixed signals this week: Stocks rebounded, then dropped again. Oil prices fell, then inched up again. So what does this all mean for the economy?

NPR Economics Correspondent Adam Davidson tells Deborah Amos that those upticks and downticks are the things that "the average person should feel free to just go ahead and ignore."

"Economists call that 'noise,' literally," Davidson says. "This housing bill that the House just passed and the Senate is expected to pass tomorrow, that is big. That is, I think, the biggest piece of legislation yet out of this crisis. It's probably the single biggest piece of legislation dealing with housing in America in decades."

However, Davidson says, basically every economist dislikes the bill.

"There is something for everyone to hate, and I've been fascinated to read how left-wing and right-wing and centrist and Democrats and Republicans — every economist hates this bill. But — and this is a big but — many say it is necessary anyway," he says.

"I think it's likened to your kid [coming] home at midnight, saying, 'Hey, I borrowed some money from a loan shark and he's about to break my legs or kill me, can I borrow $10,000?' No one likes that situation, but most parents would give the $10,000 to save their kid. But then they would say, 'Hey, we are going to talk about this in the morning,'" Davidson explains.

"It's the 'let's talk about it in the morning' part that economists are worried about. There's a lot of feeling that the Congress and the administration and the Federal Reserve are not saying enough about how we're going to have to revisit all of this. We're going to have to punish the people, or make the people who took big risks bear the outcome of the risks they took, and that's where economists are very upset about this bill."

The long-term risk of no "talk in the morning," he says, is "that people — investors, shareholders, investment company and mortgage company mangers — have been told, 'Take big risks. You get the upside; the taxpayer will take care of the downside.' And that will make our whole economy more risky and [put] taxpayers on the hook for that."

Understanding The Housing Bill

The Senate is expected to clear a sweeping housing bill Saturday and send it to the president for his signature. The legislation would address the home-foreclosure crisis and shore up the government-sponsored mortgage giants Fannie Mae and Freddie Mac. The House passed the bill Wednesday by a vote of 272-152.

A look at what the bill would do:

— Give the Treasury Department the power to extend Fannie Mae and Freddie Mac an unspecified line of credit and to buy their stock, if necessary, to prop up the mortgage companies. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation's total.

— Allow qualified homeowners facing foreclosure to apply for lower fixed-rate, 30-year mortgages backed by loan guarantees from the Federal Housing Administration. The original lenders would have to agree to take a loss on their loans.

— Create an independent regulator to oversee Fannie Mae and Freddie Mac. The regulator could establish minimum capital requirements for the two companies and limits on their portfolios. It would also have approval power over the pay packages of Fannie Mae and Freddie Mac executives.

— Provide $3.9 billion in grants to communities with the highest foreclosure rates to buy foreclosed and abandoned properties.

— Give about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time homebuyers who bought homes between April 9, 2008, and July 1, 2009.

— Put a cap of $625,500 on the loans Fannie Mae and Freddie Mac can buy in certain high-priced areas, and a cap in other areas of up to 15 percent above the median home price.

— Count any federal infusion for the mortgage giants under the debt limit, essentially capping how much the government could spend to stabilize the companies without further approval from Congress. As of Tuesday, the national debt that counts toward the limit stood at about $9.5 trillion, roughly $360 billion below the statutory ceiling.

Material from The Associated Press was used in this report.

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