How the New Housing Law Affects You

Interest rates: The housing package could result in more upward pressure on mortgage interest rates, which have been marching steadily higher in recent months. The average national rate on a 30-year fixed-rate mortgage climbed to 6.63 percent this week, up from 5.85 percent in late March, according to Freddie Mac. While inflation fears are the main factor pushing rates up,, Mike Larson, a real estate analyst at Weiss Research, says the government's efforts to stabilize Fannie Mae and Freddie Mac are playing a role as well. The legislation temporarily boosts the size of Fannie and Freddie's credit lines with the Treasury and allows the federal government to purchase equity in the two companies. It also creates a more powerful regulator for Fannie and Freddie.

Although Treasury says it has no current plans to use its new authority, the government is now explicitly guaranteeing the roughly $5 trillion of mortgages that Fannie and Freddie own or backstop themselves. And if the government did have to step in and bail out one of the government-sponsored enterprises, "we are going to have to fund it by selling more treasuries," Larson says. Issuing more government debt would increase the yield on the 10-year treasury note, thereby pushing up fixed mortgage rates. "The reality is there is no free lunch," Larson says.

All consumers: While the law may provide only modest help to individuals in trouble, its impact on the broader financial market is profound. The government's actions have made it clear that it will bail out Fannie and Freddie if they get into trouble, thereby easing concerns regarding the mortgage finance giants. "It's forestalled a crisis," Zandi says. "Without it, the mortgage [and] housing markets would have been pushed into turmoil and the system would have been a mess."

Still, even though bad home loans are at the root of the financial crisis, consumers should not expect the housing market—or the economy as a whole—to turn around overnight. "It's not a panacea," Zandi says. "It's not going to solve all the problems."

Updated on 7/30/2008