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President George W. Bush signed Wednesday the proposed housing bill that will provide mortgage relief to 400,000 homeowners currently struggling to meet mortgage payments and avoid foreclosure. The bill intends to provide assistance to troubled mortgage companies Fannie Mae and Freddie Mac and stabilize financial markets.

It is regarded as the most significant housing legislation in decades which allows homeowners who cannot afford their payments refinance into more affordable loans supported by the government instead of losing their homes. The bill aims to take several approaches in assisting the ailing housing market. Homeowners will be provided more affordable mortgages backed by the Federal Housing Administration which would insure a total of $300 billion in mortgages. However, banks would have to agree to take large losses on the existing loans to avoid costly foreclosures. The bill would increase to $625,000 the size of home loans that Fannie Mae and Freddie Mac can buy and the FHA can insure. They also could buy and back mortgages 15 percent higher than the median home price in certain areas.

Until 2009, the Treasury Department is given unlimited power to lend money to Fannie Mae and Freddie Mac or buy their stock if necessary while the Federal Reserve will take on a new “consultative” role to watch over the companies.

Moreover, the measure includes $15 billion in tax cuts which includes an expansion of the low-income housing tax credit and a credit of up to $7,500 for first-time home buyers for houses purchased between April 9, 2008, and July 1, 2009.

While real estate prices continue to decline and loan defaults pile up, federal regulators are expecting the downfall of dozens of American banks over the next year. Though it has not expected to be as bad as the savings-and-loan crisis, problems are growing rapidly that small and mid-sized banks are expected go under within the next 18 months. Other lenders are either looking to shut down branches or seek mergers with the bigger fishes.

Though larger institutions such as the Citigroup or Merrill Lynch are in no immediate danger, most are still expected to report billions in write-offs. However, many are still jittery following federal regulators’ seizure of IndyMac Bank, one of the largest savings and loans in the US, with about $32 billion in assets. It was the biggest US lender to fail in more than 2 decades. Moreover, IndyMac was not even in the government’s troubled bank list this spring.

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