President signs mortgage-relief bill

WASHINGTON - The giant housing rescue plan President Bush signed Wednesday with little fanfare might help stanch the bleeding in the housing market, but experts on both sides of the political divide worry that it is, at best, only an emergency step.

"Is it going to resolve everything? No, we were hemorrhaging. This a good bandage," said Paul Bertsche, vice president and general counsel at CA Development.

The measure gives some first-time home buyers a better shot at the American dream and it may help some homeowners stave off financial ruin. But Mark Zandi, chief economist of Moody's Economy.com, estimates that there will be 3 million more mortgage loan defaults by year's end. "It's not a miracle cure," Zandi said. "It's one modest, positive step."

No 'silver bullet' expected

About 400,000 qualified homeowners can seek to have their mortgages canceled and replaced with a 30-year fixed rate, FHA-backed loan, and for as much as 90 percent of the home's value. However, it is up to lenders to decide whether they will participate and which homeowners they will help. Mortgage companies would wind up having to write off a portion of the existing loans.

The program, available Oct. 1 through September 2011, is designed to benefit borrowers who spent more than 31 percent of their monthly incomes on their mortgages as of March 1 on loans that were written before Jan. 2 of this year.

Consumer advocates say they think the housing act doesn't go far enough to help homeowners in peril. They said help may not arrive for months after the Oct. 1 start date and that individual homeowners have no assurances they will be among those rescued.

The Department of Housing and Urban Development, which oversees the FHA, already is trying to fend off suggestions of inevitable delays. HUD Secretary Steve Preston said the government plans to have the program in place by its start date, but criticized lawmakers for not including funding to implement it.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said the law will probably help the less distressed households, while leaving others to fend for themselves. He said, "It's not going to be the silver bullet to clean up the housing crisis."

"What happens to the people who are falling off the ledge right now? The answer is they're going to keep falling," said James Carr of the National Community Reinvestment Coalition, a consumer group.

Meanwhile, the Congressional Budget Office has estimated that 35 percent of the refinanced loans will end up in trouble again.

Credit for first-time buyers

The measure also aims to turn more renters into homeowners by providing a temporary $7,500 tax credit to qualifying first-time homebuyers. However, the tax credit must be repaid, either over 15 years or when the home is sold.

Consumers are demonstrating some interest. A website, www.federal housingtaxcredit.com, that went live Wednesday had received several thousand hits by noon, said the National Association of Home Builders.

The measure also gives new powers to backstop mortgage giants Fannie Mae and Freddie Mac. The law gives both companies an open line of credit at the U.S. Treasury and allows the government to buy the companies' stock through 2009. In return, the companies get a tough new regulator.

Both firms remain hybrid entities whose profits are private but whose losses are public. The companies control $5.2 trillion in mortgage liabilities, nearly half the nation's $12 trillion mortgage market. Their securities are embedded in the global financial system and their collapse would have paralyzed the mortgage market and caused catastrophic bank losses and a credit meltdown.

The government is now guaranteeing the $5.2 trillion debt, which is larger than the publicly held U.S. government debt. Experts can only guess at whether taxpayers will take a hit or how big it could be. The budget office said there was a better than 50 percent chance that the rescue authority would not be used while there was a 5 percent chance that one or both of the mortgage giants would lose another $100 billion or more, costing taxpayers a vast sum.

The New York Times, Chicago Tribune, San Francisco Chronicle and Associated Press contributed to this report.