WASHINGTON (Reuters) - President George W. Bush on Wednesday dropped a threat to veto a housing rescue bill, clearing the way for measures meant to shore up the worst U.S. home market since the Great Depression.


A White House spokeswoman said Bush would sign the bill because it is needed promptly to address a housing and credit crisis, despite concerns about a provision that would provide grants to communities to buy and repair foreclosed homes.

"We do not believe we have time for a prolonged veto fight," spokeswoman Dana Perino said.

Removal of the presidential veto threat spurred investors to snap up shares and bonds of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), which would receive an emergency government lifeline under the bill.

Concerns over the health of the two government-sponsored but privately held companies, which own or have guaranteed almost half of the $12 trillion in U.S. mortgage debt outstanding, had dashed hopes for recovery in battered U.S. housing and credit markets. Analysts had warned of a financial catastrophe if they were to collapse.

Lawmakers have moved with unusual speed since the Bush administration proposed establishing a temporary financial backstop for the two companies just 10 days ago.

The House of Representatives was expected to approve the rescue package later on Wednesday; it would then go the Senate for final passage. Senate Majority Leader Harry Reid said he wanted to send the measure to the president on Wednesday, but cautioned Republican lawmakers could delay it.

TOO IMPORTANT

Treasury Secretary Henry Paulson said on Wednesday he recommended that Bush drop his objections because reforms for Fannie Mae and Freddie Mac, the nation's two biggest mortgage finance companies, were too important.

"What we're doing with the GSEs is orders of magnitude more important than any of the other parts of this housing legislation," Paulson told reporters at an impromptu news conference.

Shares of Fannie Mae and Freddie Mac surged after stock markets opened. Fannie Mae climbed more than 20 percent to $16.35 a share, while Freddie Mac was up about 12 percent at $10.87 a share in morning trading.

In a further sign market concerns about the companies are relaxing, risk premiums on debt issued by the two companies narrowed. Priya Misra, an interest rate strategist at investment bank Lehman Brothers, said the legislation "makes it easier for them to raise capital."

Fannie Mae on Wednesday sold $3 billion in short term debt at higher interest rates than a week earlier. The rates, however, rose less than a benchmark investors use to judge value, showing decent demand for the deal.

STRONGER REGULATOR

Lawmakers late on Tuesday put finishing touches on the legislation and congressional budget analysts put a $25 billion potential price tag on the provision to bolster Fannie Mae and Freddie Mac, which was drafted by the Bush administration and added to a bill that has been in the works for months.

The overall measure now has wide, bipartisan support in both the House and the Senate, Massachusetts Democratic Rep. Barney Frank, the chief architect of the bill, said on Tuesday.

The added measures would give beleaguered Fannie Mae and Freddie Mac access to an expanded credit line from the U.S. Treasury. In addition, it authorizes the Treasury to purchase equity in the two companies if necessary.

More broadly, the measure would set up a new regulator for the companies and raise the size of mortgage loans that they and the Federal Housing Administration can guarantee. It would permit the FHA to refinance up to $300 billion in mortgages facing foreclosure.

The new regulator for Fannie Mae and Freddie Mac, the result of years of debate over reining in the powerful government-sponsored enterprises, could have substantial authority over executive pay at the two companies if they were to tap into the new Treasury capital line.

In addition, the measure would empower the Treasury secretary to restrict dividend payments if they were to reach for the lifeline.

It would also give the Federal Reserve a "consultative role" in setting capital requirements and ensuring the financial soundness of the mortgage enterprises.

This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available at www.leginfo.ca.gov.

Highlights of the new law are as follows:

A Few Bits of Better News
Housing data in April provided some unexpected signs of hope that the housing market may be stabilizing. While still premature to declare that ‘the bottom has been reached,’ we may be getting close. Positive permits and housing starts data was followed by a rare up-tick for new home sales in April. While April was the first time in over a year that single-family building permits posted a monthly gain, it was also the first time since October 2007 that new home sales posted an increase. However, the gain could be attributed to aggressive price cuts by builders in an attempt to undercut the resale market.

We continue to see positive fundamental changes in the new homes market like declining inventory levels and improved affordability levels. It will important for this kind of progress to continue as this year’s home-buying season is more important than ever.

Equities swung back and forth during the past week as the market tried to digest record-high crude prices, concerns about inflation, but relatively positive economic data. Leading indicators suggested that economic growth may have bottomed out as the index posted a slight increase in April. Revised GDP also showed that the economy grew at a slightly faster pace than the advance report had shown. And while crude ended the week trading at over $127/barrel, it reached a new all-time high earlier in the week. Sustained high crude prices will continue to hurt consumer discretionary spending along with igniting concerns of inflation going forward. If price pressures begin to increase, it will not be surprising for the Fed to raise rates before the end of the year.

The Economy
Preliminary estimates for first quarter gross domestic product were revised slightly higher to 0.9% from the advance figure of 0.6%. Many had expected the economy to contract during the first quarter due to the credit crunch and the continued troubles in the financial and housing markets. It is still widely expected that growth will remain weak going into the second quarter. The economy grew at a 0.6% clip during the previous quarter and the first quarter of last year. Revisions that showed a sharp drop in imports helped to improve growth estimates for the quarter.

June 3, 2008

As you know, financial markets in the United States and in a number of other industrialized countries have been under considerable strain since late last summer. Financial market conditions have in turn affected economic prospects, most notably by affecting the cost and availability of new credit.

Washington, D.C. -- The prices of homes sold in the first quarter of 2008 posted a record decline, according to a new report from the Office of Federal Housing Enterprise Oversight.

Home prices fell 3.1% from the first quarter of 2007, the largest decline in the purchase-only index, which excludes refinancings, since the agency began keeping records 17 years ago.

WASHINGTON (AP) -- Fannie Mae's CEO told shareholders Tuesday that the housing market is "about halfway through" its crisis and home prices could fall as much as 25% before the worst is over.

The largest U.S. buyer and guarantor of home mortgages will be able to weather the downturn and expand its business, Fannie Mae's president and CEO, Daniel Mudd, said as he and other top executives faced shareholders at an annual meeting in New Orleans.

The mortgage meltdown has finally gotten to Seattle, Charlotte and and other cities where prices had been holding up.

WASHINGTON — Emboldened by President Bush’s threat to veto a Democratic plan to help homeowners in danger of foreclosure, House Republicans threw up repeated roadblocks to delay debate of the legislation on Wednesday, prompting an angry argument between party leaders over procedural tactics.

WASHINGTON - U.S. Housing and Urban Development Deputy Secretary Roy A. Bernardi today announced the Bush Administration's FHASecure product has helped 200,000 homeowners refinance their mortgages and avoid foreclosure. Since September 2007, FHASecure has enabled struggling families - who are current or past due on their mortgages - to refinance through HUD's Federal Housing Administration (FHA).

May 13, 2008

Liquidity Provision by the Federal Reserve

Well-functioning financial markets are an essential link in the transmission of monetary policy to the economy and a critical foundation for economic growth and stability. However, since August, severe financial strains have shaken this foundation. A sharp housing contraction has generated substantial losses on many mortgage-related assets and a broad-based tightening in credit availability. Consistent with its role as the nation's central bank, the Federal Reserve has responded not only with an easing of monetary policy but also with a number of steps aimed at reducing funding pressures for depository institutions and primary securities dealers and at improving overall market liquidity and market functioning.1

In my remarks today, I will begin by reviewing the principles that should guide central banks' actions to support market liquidity. Then, in light of those principles, I will discuss the liquidity measures implemented by the Federal Reserve in response to the financial turmoil. I will conclude by offering some thoughts on liquidity regulation.