Fannie, Freddie Key To White House Housing Support

Support for Fannie Mae and Freddie Mac -- the government-sponsored enterprises (GSEs) -- which offer loans and loan guarantees in the housing market is a key reason why President Bush dropped his threat to veto a major new housing bill and allow it to become law, according to the White House.

The housing bill, which is set for final approval in the Senate Saturday, gives the Treasury Department emergency power to prop up Fannie and Freddie, which are the two biggest sources of U.S. home finance. Under the legislation the pair could receive billions of dollars in new loans from the federal government. In addition, the government could buy shares of stock in the GSEs.

"...Secretary Paulson has said that we need to have the GSE reform for Fannie Mae and Freddie Mac in order for us to be able to help stabilize the markets and provide confidence to the markets, which would not only help homeowners, but would help the overall economy," says White House spokeswoman Dana Perino. "So that was the largest part of the bill."

The housing bill, called the most signficant housing legislation in decades, was spurred by the ongoing housing crisis and record foreclosure rates nationwide.

The White House had opposed the bill because of $4 billion in neighborhood grants contained in the legislation.

"One of the things that we did not like about that $4 billion that the Democrats wanted to include in the bill is that it's an incentive for lenders to foreclose. Without that money -- if they think -- if the lenders think that they're going to get bailed out by the federal government, they're more incentivized then to foreclose on a property," Perino says. "What we would prefer is to not have that type of a bailout and to have the lenders be incentivized to try to work with the current homeowner to rework the loan in a way that the lender -- or that the homeowner can pay. So that -- those are the broad parameters of the bill."

Perino says the White House does not want to get into a broader market analysis of the housing market, but says, "But we do think it will have an impact on the overall health of the market in terms of stability and confidence in the financial markets."

The housing industry is eager for the bill to become law.

"This well-reasoned, bipartisan bill will restore confidence on a number of fronts, including home buyers, investors and financial institutions," says Jeffrey DeBoer, president and CEO of the Real Estate Roundtable. "It also authorizes a much-needed capital infusion for local communities struggling with both an oversupply of homes and a lack of affordable housing.

"For communities coping with rising foreclosures and associated problems, such as crime and vandalism, the federal monies proposed under the bill will help break the cycle of weakening property values, reduced tax revenues, cuts in essential services, and further exodus of residents," DeBoer adds.

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