The Housing Economic Recovery Act of 2008 became law today and I am sad to say it will offer no help to consumers, home owners, or foreclosure victims. As with most political solutions to economic events, the new law has more bark than bite.

In an interview on Bloomberg (see video below), Thomas Atteberry of First Pacific Advisors warns against putting too much faith in lawmakers to solve the housing, credit, and foreclosure problems.

I concur.

No Meaningful Help for Foreclosure Victims

As Mr. Ateberry points out even if FHA manages to refinance 100,000s of foreclosure victims or obtain short term loan modifications, the studies show about 35-45% of these mortgages with still find their way to the auction block. This could be seen as a bad thing in that it elongates the housing crisis. Better we bite the bullet now and get the housing price correction over with sooner rather than just extending it.

No Help For Home Owners

The Housing Economic Recovery Act of 2008 will have no effect on sliding home prices and dropping home purchase numbers. Until the market can get and finance folks who want to buy homes, the slide on both measures will worsen. Current home owners are stuck watching their primary asset fall in value until that time.

The measly $5 Billion given to local governments to spend buying and fixing foreclosed homes in the Housing Economic Recovery Act of 2008 is a spit in the ocean. Fannie Mae and Freddie Mac have over $800 Billion in Alt-A and subprime loans that have yet been classified as “at risk”. With this tidal wave headed our way, $5 Billion looks silly…and it is.

Consumer Get No Help Either

How are consumers supposed to contemplate buying a home when they spend currently 80% of their income now on necessities?

The American consumer has never been this over-extended since oil, gas, food, debt service, and health care costs are spiking by double digits yet their incomes remain the same.

I believe the consumer must have a little wiggle room in the budget before they contemplate home ownership and that can’t happen until inflation of the price of necessities drops. This is the exact wrong time to have commodity price inflation, yet Bernanke, the Congress, or the Administration did nothing with the Housing Economic Recovery Act of 2008 to help on that front.

The Housing Economic Recovery Act of 2008 as if the name alone makes it so.

I wish…

Good Luck!

UPDATE: As expected the President signed the Housing and Economic Recovery Act of 2008 into law today, July 30, 2008.

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