TEXT of bailout bill--just released 6:30pm Sun Sept 28th. The "Emergency Economic Stabilization Act of 2008"

[ProgressiveEconomist]

The "Emergency Economic Stabilization Act of 2008" draft of Sept. 28 has just been released as a 188K PDF at

http://www.latimes.com/media/acrobat/2008-09/42631254.pdf

What questions does this draft raise for you?

The detail I've wondered about most is, Will warrants issued to Treasury in exchange for taking "fire-sale" securities off corporations' books survive any future bankruptcy? How?

For possible future updates, and for previous drafts, see http://financialservices.house.gov/press.shtml .
A previous 42-page draft, dated September 22nd, is on the website of Barney Frank's House Financial Serces committee at http://www.house.gov/apps/list/press/financialsvcs_dem/proposal.pdf .

[golddigger]

1. AKA "The Emergency Bend Over and Take It InThe Ass Without KY

Economic Stabilization Act of 2008"

[ProgressiveEconomist]

2. First 90 lines: Table of Contents. A 'Troubled Assets Relief Program ' is the bulk of

the Act. There are 2 additional Titles, "Budget-Related Provisions" and "Tax Provisions"

"O:\AYO\AYO08C04.xml 110TH CONGRESS 2D SESSION H. R. ll

To provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES Ml. llllll introduced the following bill;
which was referred to the Committee on llllllllllllll

A BILL
To provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, and for other purposes.

Be it enacted by the Senate and House of Representa- 1
tives of the United States of America in Congress assembled, 2

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 3

(a) SHORT TITLE.--This Act may be cited as the 4
"Emergency Economic Stabilization Act of 2008". 5

2 O:\AYO\AYO08C04.xml

(b) TABLE OF CONTENTS.--The table of contents for 1
this Act is as follows: 2

Sec. 1. Short title and table of contents.
Sec. 2. Purposes.
Sec. 3. Definitions.

TITLE I--TROUBLED ASSETS RELIEF PROGRAM
Sec. 101. Purchases of troubled assets.
Sec. 102. Insurance of troubled assets.
Sec. 103. Considerations.
Sec. 104. Financial Stability Oversight Board.
Sec. 105. Reports.
Sec. 106. Rights; management; sale of troubled assets; revenues and sale proceeds.
Sec. 107. Contracting procedures.
Sec. 108. Conflicts of interest.
Sec. 109. Foreclosure mitigation efforts.
Sec. 110. Assistance to homeowners.
Sec. 111. Executive compensation and corporate governance.
Sec. 112. Coordination with foreign authorities and central banks.
Sec. 113. Minimization of long-term costs and maximization of benefits for taxpayers.
Sec. 114. Market transparency.
Sec. 115. Graduated authorization to purchase.
Sec. 116. Oversight and audits.
Sec. 117. Study and report on margin authority.
Sec. 118. Funding.
Sec. 119. Judicial review and related matters.
Sec. 120. Termination of authority.
Sec. 121. Special Inspector General for the Troubled Asset Relief Program.
Sec. 122. Increase in statutory limit on the public debt.
Sec. 123. Credit reform.
Sec. 124. HOPE for Homeowners amendments.
Sec. 125. Congressional Oversight Panel.
Sec. 126. FDIC authority.
Sec. 127. Cooperation with the FBI.
Sec. 128. Acceleration of effective date.
Sec. 129. Disclosures on exercise of loan authority.
Sec. 130. Technical corrections.
Sec. 131. Exchange Stabilization Fund reimbursement.
Sec. 132. Authority to suspend mark-to-market accounting.
Sec. 133. Study on mark-to-market accounting.
Sec. 134. Recoupment.
Sec. 135. Preservation of authority.

TITLE II--BUDGET-RELATED PROVISIONS
Sec. 201. Information for congressional support agencies.
Sec. 202. Reports by the Office of Management and Budget and the Congressional Budget Office.
Sec. 203. Analysis in President�s Budget.
Sec. 204. Emergency treatment.

3 O:\AYO\AYO08C04.xml

TITLE III--TAX PROVISIONS
Sec. 301. Gain or loss from sale or exchange of certain preferred stock.
Sec. 302. Special rules for tax treatment of executive compensation of employers participating in the troubled assets relief program.
Sec. 303. Extension of exclusion of income from discharge of qualified principal residence indebtedness."

[ProgressiveEconomist]

6. Kick!

[ProgressiveEconomist]

3. IMO, the most important part of the 'Troubled Assets Relief Program' is foreclosure prevention,

foreclosure prevention, laid out on pages 25-28. This section came about entirely because Obama made it a basic principle for any legislation Democrats should support. There's an element of real genius in this provision: In addition to helping homeowners, this provision may help taxpayers.

As owner of a large number of "CDOs" each made up of pieces of hundreds or thousands of individual mortgages, Treasury could put the pieces together, rewrite individual mortgages with more reasonable terms for homeowners, and get many of them to continue paying each month, rather than put them out of the street and get nothing for taxpayers. Modified loans would increase the value of the CDOs and thus allow Treasury to turn a profit in a couple of years when it sells them.

Individual CDO owners would not so easily be able to turn a profit while helping people stay in their homes. They would have foreclosed more often, put more people on the street, and gotten less of an increase in the value of the CDO.

----------------------------------------------------------------------------------------------------

"25 O:\AYO\AYO08C04.xml
SEC. 109. FORECLOSURE MITIGATION EFFORTS. 1
(a) RESIDENTIAL MORTGAGE LOAN SERVICING 2
STANDARDS.--To the extent that the Secretary acquires 3
mortgages, mortgage backed securities, and other assets 4
secured by residential real estate, including multifamily 5
housing, the Secretary shall implement a plan that seeks 6
to maximize assistance for homeowners and use the au- 7
thority of the Secretary to encourage the servicers of the 8
underlying mortgages, considering net present value to the 9
taxpayer, to take advantage of the HOPE for Home- 10
owners Program under section 257 of the National Hous- 11
ing Act or other available programs to minimize fore- 12
closures. In addition, the Secretary may use loan guaran- 13
tees and credit enhancements to facilitate loan modifica- 14
tions to prevent avoidable foreclosures. 15
...

(c) CONSENT TO REASONABLE LOAN MODIFICATION 9
REQUESTS.--Upon any request arising under existing in- 10
vestment contracts, the Secretary shall consent, where ap- 11
propriate, and considering net present value to the tax- 12
payer, to reasonable requests for loss mitigation measures, 13
including term extensions, rate reductions, principal write 14
downs, increases in the proportion of loans within a trust 15
or other structure allowed to be modified, or removal of 16
other limitation on modifications. 17

SEC. 110. ASSISTANCE TO HOMEOWNERS. 18
...

28 O:\AYO\AYO08C04.xml
(1) IN GENERAL.--To the extent that the Fed- 1
eral property manager holds, owns, or controls mort- 2
gages, mortgage backed securities, and other assets 3
secured by residential real estate, including multi- 4
family housing, the Federal property manager shall 5
implement a plan that seeks to maximize assistance 6
for homeowners and use its authority to encourage 7
the servicers of the underlying mortgages, and con- 8
sidering net present value to the taxpayer, to take 9
advantage of the HOPE for Homeowners Program 10
under section 257 of the National Housing Act or 11
other available programs to minimize foreclosures. 12
(2) MODIFICATIONS.--In the case of a residen- 13
tial mortgage loan, modifications made under para- 14
graph (1) may include-- 15
(A) reduction in interest rates; 16
(B) reduction of loan principal; and 17
(C) other similar modifications. 18

(3) TENANT PROTECTIONS.--In the case of 19
mortgages on residential rental properties, modifica- 20
tions made under paragraph (1) shall ensure-- 21
(A) the continuation of any existing Fed- 22
eral, State, and local rental subsidies and pro- 23
tections; and 24

29 O:\AYO\AYO08C04.xml
(B) that modifications take into account 1
the need for operating funds to maintain decent 2
and safe conditions at the property. 3
..."

[ProgressiveEconomist]

4. Foreclosure prevention language seems to provide remarkable flexibility for implementation,

compared to some of the dense language on other provisions. The only opaque language I could find that bears on foreclosure prevention is tucked away on pages 69-70.

Does anyone know what this means?

----------------------------------------------------------------------------------------------------
"69 O:\AYO\AYO08C04.xml

SEC. 124. HOPE FOR HOMEOWNERS AMENDMENTS. 9
Section 257 of the National Housing Act (12 U.S.C. 10
1715z-23) is amended-- 11
(1) in subsection (e)-- 12
(A) in paragraph (1)(B), by inserting be- 13
fore "a ratio" the following: ", or thereafter is 14
likely to have, due to the terms of the mortgage 15
being reset,"; 16
(B) in paragraph (2)(B), by inserting be- 17
fore the period at the end "(or such higher per- 18
centage as the Board determines, in the discre- 19
tion of the Board)"; 20
(C) in paragraph (4)(A)-- 21
(i) in the first sentence, by inserting 22
after "insured loan" the following: "and 23
any payments made under this para- 24
graph,"; and 25

70 O:\AYO\AYO08C04.xml
(ii) by adding at the end the fol- 1
lowing: "Such actions may include making 2
payments, which shall be accepted as pay- 3
ment in full of all indebtedness under the 4
eligible mortgage, to any holder of an ex- 5
isting subordinate mortgage, in lieu of any 6
future appreciation payments authorized 7
under subparagraph (B)."; and 8
(2) in subsection (w), by inserting after "ad- 9
ministrative costs" the following: "and payments 10
pursuant to subsection (e)(4)(A)". 11
..."

[ProgressiveEconomist]

5. self-delete -- double-post