The 'Emergency Economic Stabilization Act' failed to pass congress yesterday. the result being a 777 point drop in the stock market. Most of us are aware of the affect, but don't understand what the Act included. Below is a summary from John Herzog, Alabama's first Certified Mortgage Banker.

I.  Stabilizing the Economy

The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy.  EESA also establishes a program that would allow companies to insure their troubled assets.

II. Homeownership Preservation

EESA requires the Treasury to modify troubled loans – many the result of predatory lending practices – wherever possible to help American families keep their homes.  It also directs other federal agencies to modify loans that they own or control.  Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

III. Taxpayer Protection

Taxpayers should not be expected to pay for Wall Street’s mistakes.  The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program.  The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee on all financial institutions. 

IV. No Windfalls for Executives

Executives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses.  In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay.  In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned. 

V.  Strong Oversight

Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval). The Treasury must report on the use of the funds and the progress in addressing the crisis.  EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner.  It also establishes a special inspector general to protect against waste, fraud and abuse.

John Herzog CMB
Vice President/Regional Manager
New South Federal Savings Bank