New actions on the housing and financial crises—do no harm?

On July 27, 2008, the U.S. Senate passed and sent on to the president the “Housing and Economic Recovery Act of 2008,” reportedly the most important hosing bill since the Great Depression. The bill was originally aimed at addressing the foreclosure crisis which began in late 2006 and became especially apparent in the financial crisis that emerged in August 2007. Its passage was accelerated by the near or real failures of Fannie Mae and Freddie Mac, the nation’s two largest government sponsored enterprises (GSEs), who play a central role in the functioning of the nation’s housing, mortgage and financial markets. It is unlikely that the new steps will have much effect on the foreclosure crisis or short-term economic performance, but they create serious uncertainty over the future of the GSEs, federal finance and the status and role of the U.S. financial markets. It is likely, however, that the new arrangements for Fannie Mae and Freddie Mac will not remain static for more than a few months and that newly authorized steps for the new regulator of the GSEs are likely to ramp up the discussion and need for regulation soon.