President George W. Bush signs the foreclosure-prevention measure today

President George W. Bush signed the law legislation at the White House just after 7am today, the new legislation helps more than 400,000 homeowners foreclosure and extends a lifeline to Fannie Mae and Freddie Mac.

The foreclosure prevention measure is aimed at stopping a free-fall in housing prices and stemming foreclosures, this is to be done by providing a federal insurance for refinanced 30-year mortgages for homeowners who are finding it difficult to meet their monthly mortgage payments. The Treasury secretary will also be injecting capital into Fannie Mae and Freddie Mac in a bid to restore confidence in the two biggest U.S. mortgage providers.

The goal is to stop a collapse of Washington-based Fannie Mae and Virginia-based Freddie Mac and buy almost 50 percent of the $12 trillion U.S. mortgages.

The lead lobbyist for the White house, persuaded President Bush to not go ahead with a veto over part of the legislation that provides $3.9 billion in grants to states to buy and repair foreclosed properties. Democrats said it would stabilize neighborhoods but Bush said that it seemed like a bailout of lenders to him.

Frannie Mae and Freddie Mac would both have to stick to a minimum capital requirement, limit the size of portfolios and supervise executive pay for the two government-sponsored enterprises under the new independent regulator which is called the Federal Housing Finance Agency.

Under the law, the FHA can now insure higher loan limits, up to $625,500 from $417,000 in high-cost areas. The law also raises the nation’s debt limit to $10.6 trillion from $9.816 trillion to accommodate the Paulson plan.

A new FHA program, a unit of the U.S. Department of Housing and Urban Development, would insure up to $300 billion in refinanced 30-year fixed loans for about 400,000 borrowers struggling with their monthly payments after loan holders agree to cut their mortgage balance.

The new measure would offer $15 billion in tax breaks, including provisions offering the equivalent of interest-free loans worth up to $7,500 for first-time homebuyers. States would be able to offer an additional $11 billion in mortgage revenue bonds to refinance subprime loans.

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Source: Bloomberg.

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