Housing Legislation a Help but No Magic Wand
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NEW YORK (Reuters)
- Washington's plan to rescue the housing market may help shore up the
U.S. economy as it copes with the worst slump in the housing market
since the Great Depression, but don't look for a swift recovery.
Investor confidence has been bolstered by the government's recent
proposals, driving stock price higher since last week, and economists
agree the move to provide extra funding for mortgage giants Fannie Mae
and Freddie Mac is vital.
One unintended consequence, however, has been rising interest rates
as the bond market has sold off sharply since the plan was unveiled
last week. That risks muting, at least in part, the broader benefit of
supporting the two mortgage finance firms.
The U.S. House of Representatives approved the housing plan on
Wednesday afternoon, with the Senate expected to vote on it later.
Policy-makers and economists see the government sponsored
enterprises as crucial to keeping the housing market open for business
since they own or have guaranteed almost half of the $12 trillion in
U.S. mortgage debt outstanding.
Financial markets' recent loss of confidence in the GSEs led many
economists to contemplate the consequences if they were to collapse,
convincing many that measures being taken by Congress were necessary.
"It's necessary and it will have positive benefits to the U.S.
economy for a period while we're in such difficult straits," Brian
Fabbri, managing director of economic research at BNP Paribas, said
about the rescue package, which has also been supported by the U.S.
Treasury.
"If there is no GSE Treasury help, the housing market wouldn't just
be in recession or declining, it would plunge. We wouldn't begin to
estimate how low it might go if GSEs were not able to fulfill their
mission."
Government 
