Is the Housing Bill the Answer?

Today President Bush signed the emergency housing bill to law. This bill provides for the support of mortgage giants Fannie Mae and Freddie Mac, which insures about half of the nation's mortgages. It also comes in the week where we have just passed a record deficit budget. I cannot but help but wonder if we are in for further hard times. As usual the poor will suffer greatly. The New York Times reports:

The law authorizes the Federal Housing Administration to insure up to the $300 billion in such loans but the Congressional Budget Office has estimated that only $68 billion of that authority is likely to be used. The original lenders will have to pay upfront fees into an insurance fund, and borrowers will pay on-going insurance premiums of 1.5 percent a year to insulate taxpayers against losses from defaults.

The budget office has estimated that 35 percent of the refinanced loans will end up in trouble again.

Did I read that right? Has the congressional budget office really predicted a 35% failure rate in REFINANCED loans? I'm not sure what do do with that...

I'm mixed on this bill. I feel pain for my friends and neighbors who are losing their homes. NCUD is having many intense conversations about what we can and should do.  But our efforts will very much be funded by private donors and foundations. On the other hand, the economy and housing market cannot suffer the failure of Fannie and Freddie. But can we continue to afford a $500 billion deficit? If we the taxpayer are asked to continue to bail out the mortgage industry - how high will that deficit go? When inflation starts to kick in, and the jobless rate goes up (both of which are happening right now) where will we be? 

The article goes on to say:

Some experts have said that the law is wrong-headed in its attempt to retain the hybrid nature of the mortgage finance giants, which are private companies with publicly traded stock, but which have an explicit guarantee of help from the government - an arrangement that critics say privatizes the profits but socializes the risk and any losses.

David M. Walker, the former comptroller general of the United States and head of the Government Accountability Office who is now president of the Peter G. Peterson Foundation, said that Bush might have been unwise to sign the measure.

"Providing authority to the secretary of the Treasury to extend credit or to buy stock is one that will end up costing the taxpayers tens of billions of dollars," Walker said in an interview earlier this week.

Walker noted that other government interventions in the private market, including a rescue of the Chrysler automobile company had provided an opportunity for taxpayers to profit. But when it comes to the mortgage giants, he said, there is no upside.

"The way this is structured," he said. "It's only a matter of how much the taxpayers are going to lose."

Supporters of the legislation - including Senator Christopher Dodd, Democrat of Connecticut and Senator Richard Shelby, Republican of Alabama, the leaders of the banking committee, and Representative Barney Frank, Democrat of Massachusetts, the main author of the legislation in the House - say the law represents the best way to help stabilize the housing market, potentially putting a solid floor under declining prices.

To be sure, there are no easy answers. This is one of the most scary, interesting and unique financial climates I've seen in my lifetime. I've said it many times before. I believe the answers to the world's condition rests with the creativity, expertise and spiritual authority that Christ instilled in His people. 

What do you think? How are you feeling about the economy? What should the Church's response be?