(AFP) – Jul 26, 2008
WASHINGTON (AFP) — The US Senate on Saturday approved an elaborate housing rescue plan designed to help thousands of homeowners avert foreclosure and bolster mortgage finance giants that have struggled amid a volatile housing market.
But it came as the government shut down two more banks, taking the total to 10 that have been closed in the 18 months since the housing crisis first shuddered through the economy.
The Senate adopted the bill, which provides 300 billion dollars in federal guarantees to help refinance troubled mortgages, by a vote of 72-13, after the House of Representatives passed it on Wednesday.
President George W. Bush had dropped his earlier opposition and promised to sign the bill into law as soon as possible.
Before the vote, senators praised the bill as a product of rare bipartisan cooperation and said the legislation was vital to stem the fallout from a slumping housing sector.
"You're having the worst of all possible worlds. Wealth is declining, the source of wealth creation and costs are rising simultaneously," said Democrat Chris Dodd who chairs the Senate Committee on Banking, Housing and Urban Affairs.
"When we consider the role home equity has played in support of consumer spending, we see the danger a vicious downward cycle could create," Dodd said in a session carried live on C-SPAN television.
In addition to the federal guarantees for home loans, the bill provides for government credit and equity injections in Fannie Mae and Freddie Mac, the two mortgage lenders that underpin much of the housing market.
The bill also calls for some 3.9 billion dollars to help local governments buy and rehabilitate foreclosed homes.
Opponents, who tried to delay the vote and forced a rare weekend session, argued the plan would distort the market by rewarding "irresponsible" lenders and consumers and allow the government too big a role in the housing market.
White House spokesman Tony Fratto said that providing a financial lifeline for the government-sponsored Fannie Mae and Freddie Mac as well as more regulatory oversight "would contribute to confidence and stability in housing and financial markets."
"President Bush will sign this bill when he receives it, despite our concerns with some provisions, including nearly four billion (dollars) to help lenders, not the homeowners this legislation is intended to serve," he said.
The aid package comes with the housing sector still weakening from a nearly two-year-old slide and data showing home prices falling further, inventories rising and many buyers waiting on the sidelines.
Some analysts say the market is frozen as a result of tight credit and buyers paralyzed by concerns that prices will continue to fall.
"As more homes are dumped on the market, home prices fall further, driving further mortgages underwater, leading to further foreclosures, further homes dumped on the market, and further home price declines," said economist Richard Kelly at TD Bank.
Signs of continuing carnage in the sector came late Friday when the US Treasury took over two affiliated western banks, First Heritage Bank of Newport Beach, California, and First National Bank of Nevada, based in Reno, Nevada.
The Treasury's Office of the Comptroller of the Currency said both were undercapitalized and facing losses that would wipe out their capital.
While relatively small -- First Heritage Bank had three branches and First National Bank of Nevada 25 branches -- the two were clear casualties of the plunge in real estate values and rise in foreclosures in the formerly booming southwest.
The Federal Deposit Insurance Corporation said that the 28 branches would reopen Monday as part of Mutual of Omaha Bank, which took on all deposits of the failed banks as well as paying 200 million dollars for other assets.
The closure came just weeks after the failure of the much larger IndyMac Bank, which was weakened by heavy exposure to risky subprime mortgages and collapsed after a run by depositors.
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