Inside the Housing Rescue Bill

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…

Homeowner benefits

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.

Homebuyer benefits

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.

Community benefits

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.

Photo Credit: wonderal

18 Responses to “Inside the Housing Rescue Bill”

  1. Anonymous

    LOL at all you cynical jerks who don’t believe in anything. This bill will help people, whom, like myself, bought houses when the market was at it’s highest. I did the right thing. I saved my pennies, put my 20% down, got a great interest rate fixed for five years, and have seen the value in my property fall to a level where it is only worth the 80% that I owe. I didn’t fall for one of those stupid neg-am loans, yet I am still unable to refinance my property because the value is now nearly 100% of the loan amount that I need to secure. This bill is designed EXACTLY for people like me who work, pay their bills on time, and got screwed by people dumb enough to fall for predatory lending.

  2. Anonymous

    What about all those good folks that were laid-off, loss their jobs etc that obtain good loans with good down payments but unfortunate events prevented them from being able to make their mortgage payments and now may lose their home. The benefit of this bill is to help those as well. I am sure that each and everyone of you knows a few folks in this situation where they either loss their job or was required to take a major paycut. Isn’t one of the requirements for eligibility is to show proof that you had a life changing event that prevented you from being able to make your mortgage payments? Just my two cents….and one of those affected. I lost my job in February, yet I put $80k down on my house in 2006 but now not able to afford my housing payment because of my employment situation and in jeopardy of losing my investment and my home.

  3. Anonymous

    This bill does not take the whole picture into account.
    Homeowners are taking a hit, not only with their loan agreements, but also with the job situation the US is facing which is attached to the loan structure.
    When a person loses their employment and is forced into an entirely different income level (due to continuous jobs floating overseas) How is recovery possible in any arena ?
    We, as the people need to start waking up and stand strong regarding our trade agreements ( which need a quick addendum) and start measures to reassure our own production and manufacturing of goods and products. America is losing control of the way the corporate government is handling and delivering these little bandages to us. And a bandage package seems to keep us quiet and not as responsive as Americans need to become. Too many people are losing their JOBS then their HOUSES! (Of course there is the exceptions, always is.) But let’s take the most serious and obvious step first. SECURE AMERICAN JOBS AND THEN RESTRUCTURE LENDING!

  4. Anonymous

    As for the 90% refi, the lender has to agree to the loan write-off which is not likely to happen in my opinion since the 90% loan requires that you are up to date on your payments. From the bank’s perspective why would they write down a loan that is being paid on time?

  5. Anonymous

    I don’t think this bill is going to help anyone. I feel the government is trying to do anything that makes them look good. They still are not helping with the real problem that they helped to create.

  6. Anonymous

    Once again, Uncle Sam manipulates the market! First, they create ridiculously low interest rates and overstimulate the housing market, then they try to stop the inflation they created (by raising rates) – and now their using gov’t money (which they don’t really have) to try to bail themselves and others out…
    One of these days, and I’m thinking it’s gonna be sooner than later, this house of cards is going to fall… and when it does… wow..

  7. Anonymous

    I agree with many of the other comments. In a capitalist economy, businesses and individuals who make poor decisions need to fail. Unfortunately, in this case, those who made bad decisions are getting bailed out, while those who made intelligent decisions or, like me*, got lucky will pay with our taxes.

    *I had purchased a 100% (80+20) financed home with a 30-yr mortgage, but then re-fi’d to drop the 20% mortgage once the value went up. Note, however, that I did not pull out any equity in the process to buy a boat.

  8. Anonymous

    #4 – Katrina – I love the analogy 🙂

    I bought a house 3 years ago, a modest one I knew I could afford, with the plan to buy another house in 5 years as an investment property. The second house is going to be harder to do since prices will stay inflated, plus I should have bought a bigger house I couldn’t afford so I could get bailed out.

    I’m not a fan of this bill. Even as a home owner, I’d rather see prices fall and correct themselves, rather than have tax money prop them up unnaturally high.

  9. Anonymous

    Totally think adults should understand the idea of there being consequences; the only upside of this bill, and the real downside of this fiasco has been the damage to the communities involved. The domino effect has been sad to see, so I hope some good will come from this aspect of the bailout.
    Bums me out, though, as a long time homeowner and taxpayer. No rewards for us being responsible grownups.

  10. Anonymous

    I’m with Angie – this gets me, the guy who took his time, didn’t bite off more than he could chew, didn’t buy a mansion on my non-mansion salary, absolutely nowhere. This is a huge mistake, bailing out people who got themselves into the situation. How is anyone supposed to learn from this? Make a big mistake, big bad government will come save you. No sense at all.

  11. Anonymous

    I think that people need to learn from their mistakes. If we remove the pain of making the mistake, it encourages further similar behavior, which is NOT good for people, because Uncle Sam won’t always bail them out.

  12. Anonymous

    So you know what. Years ago I really wanted a first generation ipod. But being a college student and a $500 price tage I couldn’t afford it. But guess what?! I went to the apple store and they said they would sell it to me on an interest free loan! Only catch is after 12 months the interest rate would jump. But initial monthly payments would only be $25 bucks a month. I thought to myself… “I really….really want it. And I can afford $25 bucks.” And it was bought.

    Jump forward 12 months. I had only paid the minimum payments on it. My balance was ~$400. But the second, generation came out and the value of my ipod was only $200. I was upside down in my loan ):

    Two years later. Another generation has come out. My original ipod which I still owed $200 on was now only worth $50. What a bummer. Worst part is with the jump in interest rates, my $25 payments are only lowering the principal by $5/month. This just doesn’t seem fair or worth the payments. I think the store clerk was a crook for letting me do that.

    I’m in luck though, the govt saw how my outstanding balance was greater than the market value. Listen to this deal they gave me. They would lower the balance to 90% market value! I did it and my balance got lowered by almost 30%! They saved me from paying that absurd amount I agreed to pay in the first place. Thinking back, I shouldn’t have agreed to it knowing what I know now. But I wasn too busy drooling over it in the first place I would have realized I couldn’t afford it. But good ‘ol govt. bailed me out.

    10 Years Later: I found my original ipod in the attic! I looked on ebay and it is now a collectors item. It is selling for $400. Not as much as I originally bought it for, uncle sam ended up subsidizing most of the loan. So if I sell it, I’ve actually MADE money.

    What a deal.

  13. Anonymous

    So this gets me, the reasonable person, nowhere. Still unable to afford a home for 5+ years. Most likely longer given the stricter lending requirements coming up. And the probable demise of low 5% downpayments. But everyone who just went ahead and bought a house on a whim when they couldn’t afford it get bailed out and get to keep their house.

    All on my taxes. And I can’t even get the interest free loan benefit because I make 1k over the limit.

    Wouldn’t a better saving bill be to kick everyone out of their house and use the money instead to send everyone in america to Economics 101 and Home Budgeting classes?

  14. Anonymous

    I like the idea of the government sharing the profits at the eventual sale of the property. Hope they can enforce that part of the bill. I don’t like the idea of the bill bailing out those who might have gotten envolved in a bad mortgage arrangement.

  15. Anonymous

    Actually that ‘tax credit’ is an interest-free loan. The amount given as a ‘credit’ has to be repaid over fifteen years by the buyer. For example, if you receive the maximum $7500 ‘credit’, you will have to repay $500/year for fifteen years.

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