The House of Representatives passed the Emergency Economic Recovery Act of 2008 (the “Act”) today by a vote of 263 to 171—the same bill passed by the Senate on Wednesday and described in our advisory of October 2, 2008.1 The bill was presented to President Bush this afternoon and, as expected, immediately signed into law. Among other things, the Act provides the U.S. Treasury with $700 billion to purchase (and later resell) troubled mortgage loans and mortgage-related assets from banking organizations and other financial institutions. On Monday, the House failed to pass the original bailout plan by a 205 to 228 vote, with 95 House Democrats and 133 House Republicans voting against the bill.2

The major provisions of the Act include:

  •  Authority of the U.S. Treasury to purchase and hold up to $700 billion in “troubled assets” and to establish, within 90 days, a guarantee program for troubled assets with participating financial institutions paying premiums under terms and conditions to be established by the Treasury Secretary;
  •  Authority of the U.S. Treasury to take warrants in financial institutions that participate in the program to ensure that the government is compensated if the financial institution becomes profitable;
  •  Authority of the U.S. Treasury to recoup losses incurred under the program, if any, after five years.
  •  Creation of the Office of Financial Stability within Treasury’s Office of Domestic Finance to manage the programs established under the Act and enhanced congressional oversight with the creation of an Office of the Inspector General as well as a Congressional Oversight Panel;
  •  Restrictions on executive compensation for those entities selling troubled assets or that obtain federal insurance for, or guarantees of, trouble assets;
  •  Requirement that the Treasury Secretary implement a plan to minimize foreclosure through loan modifications as well as other homeowner assistance provisions; and
  •  A temporary increase in federal deposit insurance coverage from $100,000 to $250,000.

The Act also includes certain other provisions, including a two-year extension of certain tax breaks, added by the Senate in order to make the legislation more attractive to House Republicans.

As enacted, there is still a great deal of uncertainty regarding several important provisions of the Act, and significant policy and implementation decisions and considerations have yet to be worked out. These issues will likely remain in the political spotlight for months to come.