In case you missed it, Congress has passed the so-called Housing Rescue bill, and President Bush is poised to sign it into law despite his opposition to certain components of the bill. So what’s the Housing Rescue bill all about?
What follows is a rundown of the benefits included in the bill…
Up to 400, 000 homeowners at risk of foreclosure will be allowed to refinance into lower-cost mortgages insured by the Federal Housing Administration. To qualify, borrowers must live in an owner-occupied home, have a relatively high level of debt to income, and agree to share the profits on an eventual resale with the government. Moreover, the lenders must agree to write down the loan principals, meaning that lenders could use this an opportunity to shed bad loans and hang onto better loans.
Once this bill becomes law, first-time homebuyers can qualify for a tax credit of 10% of their new home’s purchase price, up to $7, 500. The income caps for the full benefit are an adjusted gross income (AGI) of $75, 000 for single people and $150, 000 for couples who file taxes jointly. The thinking here is that the tax credit will help to stimulate a sagging real estate market. The catch is that this “credit” is essentially an interest-free loan that has to be repaid over the following 15 years.
The Housing Rescue bill offers nearly $4 billion to communities to purchase and rehabilitate distressed homes. The homes will then be sold to low- or moderate-income individuals with the profits being use to fund neighborhood development. The thinking here is that foreclosures have downstream effects on neighboring property values. By attempting to stem the tide of foreclosures, the bill seeks to stabilize neighborhoods and reduce this negative impact.
Fannie Mae and Freddie Mac benefits
In hopes of stabilizing the financial markets, the bill also makes explicit the government’s backing of the Federal National Mortgage Association (FNMA, or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac). Fannie Mae and Freddie Mac own a combined total of $5 trillion in U.S. mortgages, nearly half the nation’s total.
The Treasury now has the power to rescue both companies through loans or cash infusions. The bill also makes permanent an increase in the ceiling of “conforming” loans to $625, 500. This measure, which is intended to boost to the high end of the real estate market, was introduced in the original economic stimulus package.