Housing Bill a Potpourri of Lender Bailouts and New Programs
(APN) ATLANTA — The US House and Senate approved far reaching legislation in late July that will provide billions in loans to struggling homeowners and a rescue plan for lending titans and Government Sponsored Enterprises (GSEs) Freddie Mac and Fannie Mae.
The House passed The American Housing Rescue and Foreclosure Prevention Act of 2008 on July 23, 2008, by a vote of 272-152 shortly after President Bush announced he would support the legislation, reversing the his earlier veto stance. The Senate signed off July 26 by a vote of 72-13.
President Bush signed the legislation on July 30.
US Sens. Christopher Dodd (D-CT) and Richard Shelby (R-AL), the Chairman and Ranking Members, respectively, of the Senate Committee on Banking, Housing and Urban Affairs, cosponsored HR 3221, which is expected to alleviate troubles for hundreds of thousands of Americans struggling to keep their homes in addition to other homeowners and communities already suffering the effects of foreclosure.
“Today, Congress did more than send a bill to the president — we sent a message to American families that help is on the way,” Dodd said in a statement on his Web site. “In addition to providing urgently needed relief to homeowners on the brink of losing their homes, this legislation will address our broader economic problems by helping to reform our housing sector and provide reassurances to our financial markets.”
“We have created a strong GSE regulator, as well as the conditions necessary for a recovery in housing markets,” Shelby said in the same statement. “We must now pursue vigorous oversight of the implementation and effectiveness of our efforts.”
APN reported this week that HR 3221 provides for the creation of a National Housing Trust Fund that will set aside hundreds of millions of dollars annually toward the creation, operation, rehabilitation, and preservation of affordable housing.
Here are some additional features of the bill:
HOPE for Homeowners Act
This new program, which takes effect October 1, 2008, will exist within the Federal Housing Authority (FHA) to prevent foreclosures for many Americans that will not cost taxpayers extra money.
The FHA can insure up to $300 billion in new 30-year fixed-rate mortgages for vulnerable borrowers in owner-occupied homes in exchange for lenders agreeing to write down loan balances to 90 percent of the homes’ current appraised value.
The act is built on five principles: long-term affordability, no investor or lender bailout, no windfall for borrowers, voluntary participation, and restore confidence, liquidity, and transparency.
Over the next three years, funds from the National Housing Trust Fund will be diverted to fund this program.
Help for Fannie and Freddie
HR 3221 allows the Treasury Department to offer Fannie Mae and Freddie Mac an unlimited line of credit and the right to buy back stock in the companies over the next year and a half.
Stocks for both companies have tumbled in recent weeks as concerns grow over whether both will have enough money to survive future losses in the housing market. Shares for Freddie Mac are down 66 percent since the beginning of June while Fannie Mae is down 57 percent, according to CNNMoney.com.
The Congressional Budget Office released a report July 23 that estimates such a bailout could cost the federal government $25 billion from 2009-2018. The report notes there is “a greater than 50 percent chance” the government would provide no assistance to either company over the next 17 months.
But there is also a 5 percent chance “such assistance would need to cover as-yet unrecognized losses greater than $100 billion,” according to the report.
While HR 3221 enjoyed broad, bipartisan support, there were vocal critics like US Sen. Chuck Grassley (R-IA) who objected to a government-sponsored bailout for Freddie Mac and Fannie Mae.
“The bill’s bailout of Fannie Mae and Freddie Mac doesn’t even begin to reform the excesses and the conflicts of interest that contributed substantially to the problems the mortgage giants face today,” Grassley said in a statement on his Web site.
“I voted to proceed to this legislation because I very much wanted Congress to address the important housing issues facing the country today, but this bill has fallen prey to the special interests on Wall Street and K Street at an unjustifiable expense to taxpayers and homeowners on Main Street,” he added.
Tax credits and relief
First time homebuyers can receive a tax refund worth up to 10 percent of the home’s purchase price but cannot go beyond $8,000. The refund, however, would have to be paid back over 15 years in equal installments.
State-by-state limits on the annual amount of federal low-income housing tax credits (LIHTCs) are set to go up. LIHTCs help finance the development of rental housing for low-income families.
Current law dictates only those who itemize deductions on their federal tax returns can deduct state and local property taxes from their income. Now, 28.3 million non-itemizers who pay property taxes can also make a deduction: $500 for single filers and $1,000 for joint filers.
FHA and GSEs reforms
FHA will expand, modernize, and streamline in order for all American families to access secure and affordable mortgages. The FHA loan limit will increase from 95 percent to 115 percent of area median income home price with a cap at 150 percent of GSE limit, which is currently $625,500.
The bill also creates a new regulator with broad authority, the Federal Housing Finance Agency (FHFA), which will oversee Fannie Mae, Freddie Mac, and Federal Home Loan Banks.
Additional CDBG funds
Communities hardest hit by foreclosures will receive an additional $3.92 billion in supplemental Community Development Block Grant (CDBG) funds in an effort to offset the ill effects.
Additionally, the Neighborhood Reinvestment Corporation will distribute $150 million for housing counseling to help families avoid foreclosure. There will also be an extra $30 million available to help provide legal services to distressed borrowers.
States buy foreclosed properties
The bill will provide $4 billion to states to buy and rehabilitate foreclosed properties. The White House expressed opposition to this, arguing it benefits lenders more than homeowners, but later reversed course.
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