United States President George W. Bush signed Wednesday into law a bill designed to help struggling homeowners and prop up the battered US housing market. The new law creates a 300 billion US dollars rescue fund to help thousands of homeowners get cheaper loans.
It may also be used to bail out the struggling mortgage giants Freddie Mac and Fannie Mae, which own or guarantee around half the nation's mortgage debt. The White House said the bill would boost confidence in the housing market. It said the bill was designed to help hundreds of thousands of Americans trapped by mortgages they can no longer afford. They will be offered the chance to refinance their debts with state-backed, fixed-rate loans. White House spokesman Tony Fratto said that the Federal Housing Administration would begin right away to implement the legislation that is "intended to keep more deserving American families in their homes". However, the bill's critics have said it will cost US taxpayers billions of dollars, and query the wisdom of bailing out irresponsible homeowners or unscrupulous lenders. According to US research firm RealtyTrac, the number of US homes in some stage of foreclosure more than doubled between April and June from the previous year. The figures showed that one in every 171 US households was in the process of losing their home - up 121% on last year. The problems in the housing market stem from sub-prime lending to those with poor credit histories. Many of these borrowers have been unable to keep up with their mortgage repayments, and now face losing their homes. This in turn has hurt the many financial institutions worldwide that invested in instruments linked to sub-prime mortgages. Freddie Mac and Fannie Mae do not lend directly to homebuyers, instead buying mortgage debt from approved lenders such as banks, and then selling it on to investors. Their shares have plunged in recent months on fears that they will not be able to cover their losses. The new law expands a temporary line of US Treasury credit to the two firms and gives the government the option to buy their shares in them if they ran into trouble.
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