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Laws and Foreclosures

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By : Justin Okeefe    99 or more times read
The present financial system is interconnected. Mortgages related to foreclosures are sold to investment firms, which then resell them as financial risk tools. Hedging funds and pension funds buy such instruments, which provide a high yield.

When the house prices have increased, such assets have been very profitable. However, the collapse of housing prices and foreclosures has triggered a chain reaction. Creditors have raised their standards, and borrowers have problems with loans payment.

The U.S. Congress has approved a law by which the state provides funding to huge companies in the real estate loans area Fannie Mae and Freddie Mac and set up a fund of 300 billion dollars to help hundreds of thousands of homeowners affected by the foreclosure crisis.

The law, approved by the Senate with 72 votes for and 13 against, has also received the approval of the House of Representatives and it needed only the signature of President George W. Bush, at that time.

The number of people who cannot pay their mortgages has reached a record level in the U.S. With the decline of the properties’ prices, this situation has led to the biggest foreclosures crisis in the U.S. since the great economic crisis.

Fannie Mae and Freddie Mac have reported losses of several billion dollars because of mortgage loans, and the shares of both companies have seen significant losses.

Real estate specialists said that the law would help stabilize the sector, but would not end the crisis.

Approximately 2.5 million owners will lose their homes, because of unpaid loans, it has been estimated the National Coalition of Reinvestment Communities, an organization consisting of 600 communities of investment and development groups.

The Law Congress is welcome but it will have probably little effect on the mortgage sector crisis affecting financial markets and the economy, according to real estate specialists.

On the background of the withdrawal of private funds from the mortgage area, Fannie Mae and Freddie Mac own or guarantee at this time about half of the U.S. mortgages, worth 12 trillion dollars.

Under the law, the two financial companies can access temporary credit lines and the government can even buy shares if the market evolution requires it. The Congress has also decided to establish a fund of 300 billion U.S. dollars, under the Federal Housing Administration to help people and to refinance mortgages that they can no longer pay.

Approximately 400,000 families can benefit from the fund, which has become operational.

The law provides four billion U.S. dollars for communities, to help them buy and repair foreclosed homes and auctioned ones; it reduces certain charges for buying a home, sets up the first office for licensing mortgage brokers and loan officers, and increases the limit for mortgages, which can be guaranteed by federal agencies.

The new law establishes as well a regulatory authority for joint stock companies, with wider powers than the existing one, including the power upon the capital level and internal financial controls, which will cooperate with the Federal Reserve.

Every fifth American who has taken mortgages owes to banks more money than the value of its property, and soon the report can reach 1 in 4, as homes get cheaper, and economic growth slows, according to a report quoted by Reuters.
Find Bank Owned Foreclosures at You can search in our Bank Homes Database or see Bank Homes News in our Blog.

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