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Summary of the Proposed Economic Stabilization Act
As reported by the National Association of REALTORS®
WHAT'S AT STAKE FOR REALTORS®
The
House has defeated the Emergency Economic Stabilization Act (EESA) on a
vote of 205 - 228. NAR supported the package. Media reports about it
did not present the case for the many ways it would have supported the
real estate industry.
The summary below presents all the
bill's provisions, condensed into some general subject headings. Many
of these provisions are likely to survive in whatever legislation comes
next.
Help Homeowners and Borrowers:
The legislation responded to the criticisms that lenders have been slow
and/or unwilling to work with homeowners and borrowers. It encouraged
negotiation in short sales and consumer efforts to refinance or
reconfigure existing mortgages:
- When the Treasury (or
other federal agency that holds mortgages) acquires troubled existing
mortgages from financial institutions, agencies are required to work
with lenders and mortgage servicers to find ways to avoid
foreclosures.
- All federal agencies are required to
work with servicers to facilitate loan modifications that will consider
the net present value of the mortgage.
- Similar
refinancing and foreclosure prevention requirements apply to mortgages
involving owners of multi-family properties and owners of commercial
properties. Policy goal is to
assure that tenants don't lose their residence or their place of business when an owner has problems with the mortgage.
- Changes
to existing mortgages can include (but are not limited to) revisions in
principal, interest rate and period for repayment.
Get Money into the Financial System Quickly:
The credit markets are nearly frozen. Lenders can't lend because they
are receiving no payments on existing loans. The legislation allowed
the government to buy troubled loans and mortgage securities. The
funds that the institutions received when the government purchased the
existing portfolios were to be available to issue new mortgages with
more carefully specified and monitored lending standards. Provisions
include:
- Create a Troubled Asset Relief Program (TARP) to
purchase and guarantee the troubled assets from the financial
institutions that hold mortgages and/or mortgage-backed securities.
- A
new Office of Financial Stability within the Treasury to operate TARP,
with input from the Federal Reserve, Federal Deposit Insurance Corp
(FDIC - the agency that works with failed and failing financial
institutions to insure and protect consumers), the Comptroller of the
Currency (bank regulator), Office of Thrift Supervision (regulator of
former savings and loan companies) and the Secretary of Housing and
Urban Development.
- Timing for TARP purchases designed to assure that all the authorized $700 Billion is not released at one time.
- First
release of funds to purchase troubled assets will be $250 Billion.
Second release of up to $100 Billion must be authorized by the
President. Final $350 Billion can be issued only on Congressional
approval. Congress given 15 days to act.
Follow, Protect and Watch Over the Money:
Congress will keep a tight rein on TARP. Congress will have the
assistance of numerous agencies charged with specific tasks and
reporting responsibilities.
- TARP Oversight Board at Treasury -- monthly activity reports to Congress.
- Secretary of Treasury -- detailed reports to Congress for each $50 Billion in transactions as the transactions are completed.
- Government Accountability Office (Congress's auditor) -- financial reports about TARP activities every 60 days.
- Judicial
Review -- Federal courts may issue injunctions when there is a finding
that the Secretary of the Treasury has acted in a manner that is
arbitrary, capricious or outside the law.
- Create a
new Inspector General (IG) for TARP. An IG might be viewed as the "cop
on duty" who has authority to investigate TARP's activities. IG will
make quarterly reports to Congress.
- Appoint a
Congressional Oversight Panel - receive and process all these reports
to keep Congress apprised of the state of financial markets, activities
of the regulatory system and the use of TARP's asset acquisition and
disposition authority.
- Federal Reserve -- provide
reports to Congress on utilization of the lending authority created
earlier this year. That authority was intended to assist ailing
financial institutions.
Put Brakes on the Bad Guys: Congress wanted to curtail perceived "bad acts" of executives who made big bets and lost.
- Assure that skilled asset managers who buy and sell TARP assets have no conflicts of interest with prior employers or firms.
- No
golden parachute or severance payments to executives of companies that
sell assets to TARP. If a company that sells assets to TARP does make
any post-employment payments (other than retirement compensation), the
executive (not the company) must pay a 20% excise tax.
- If
a company sells assets to TARP, then no tax deductions for salary or
other compensation will be allowed if a worker's compensation package
is more than $500,000.
- All financial
regulatory agencies are required to cooperate with the FBI in its
investigations of fraud, misrepresentation or malfeasance in the
selling or advertising of financial products.
Give the Taxpayers a Stake in the Profits:
Historically, when the government has intervened to shore up a
company's or government's financial dealings (such as the loan
guarantees made to Chrysler and the aid given to New York City during a
fiscal crisis), the long-term effect has been that the government has
made money back on the deal. The legislation provided an "upside"
benefit for taxpayers:
- Any profits generated when the government subsequently sells TARP assets would be used to pay down the national debt.
- The
government will receive warrants in the companies that participate in
TARP. The warrants are similar to stock, but do not grant any voting
authority to the government. If the participating company pays
dividends at some future time, the warrants would allow the government
to receive the dividend. Similarly, if the government sells its stake
in the company, the warrants would entitle the government to any
appreciation.
Recoup What's Still Owed:
If, after five years from the date of enactment (the date the President
signs a bill), the program has lost money, the sitting President will
be required to present a plan to Congress for ways to recover the funds
from the financial institutions that benefited from the TARP relief. |
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The mission of the Cleveland
Area Board of REALTORS
(CABOR) is to be the leading resource and advocate for the real estate community, to enhance the ability, conduct
and image of its members and to protect and promote real property rights.
Housing Stabilization
NAR is fully supportive of the recent announcement that the Federal Reserve will purchase housing-related debts of Fannie Mae and Freddie Mac.
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Don't miss a minute of the excitement surrounding NAR's Rose Bowl parade float. Watch "behind-the-scenes” footage of the parade float's design, construction, and participation.
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