Mortgage News

The U.S. government's bailout of the housing and lending industries has begun, as expected. President Bush has signed into law a bill which gives the U.S. Treasury the power to buy share in Freddie Mac and Fannie Mae, which investors in those two companies had long counted on. Whether this will actually help restore their investments is another question entirely. My guess is that it won't, but crazier things have happened, and I don't dare rule it out.

Also, the new law establishes a $300 billion fund for bailing out homeowners who were sold mortgages that they can't afford. While this is good news to those homeowners, it also drives the deficit higher than it has ever previously been under a president who has already established all-time records in budget deficits.

Democrats were particularly pleased that the new bill included a permanent affordable housing fund financed by Fannie Mae and Freddie Mac. The bill also offers tax breaks to spur home-buying and raises the limit on the size of mortgages that federal agencies can guarantee.

In short, Congress has once again engaged in the exact same behavior that ultimately led to the crisis (and once soaring housing prices) in the first place. No lessons have been learned, and we are now doomed to repeat the whole process. Meanwhile, I'm sure we can count on the Federal Reserve Board of Governors to continue to pump more newly created money into the system, providing the means for making all this a reality in years to come.