Mortgage assistance is signed into law
400,000 homeowners expected to get relief
CHICAGO — First-time homebuyers have a better shot at the American dream, and strapped homeowners may be able to stave off financial ruin under a lengthy set of measures that President Bush signed into law Wednesday.
But there are plenty of catches in the 694-page housing legislation.
The General Accounting Office has said the mortgage-relief facets of the legislation will assist 400,000 struggling homeowners nationwide.
Programs to keep homeowners in their homes by restructuring their loans could shrink the glut of houses on the market by lessening the number of preforeclosure and foreclosure sales.
But Mark Zandi, chief economist of Moody’s Economy.com, estimates that there will be 3 million more mortgage loan defaults by the end of the year. “It’s not a miracle cure,” Zandi said of the legislation. “It’s one modest, positive step.”
Under the mortgage-assistance program, qualified homeowners can seek to have their existing mortgages canceled and replaced with a 30-year fixed rate, FHA-backed loan, and for as much as 90 percent of the home’s value. However, it is up to lenders to decide whether they will participate in the program and which homeowners they will help. Mortgage companies would wind up having to write off a portion of the existing loans.
The program, which will be available Oct. 1 through September 2011, is designed to benefit borrowers who spent more than 31 percent of their monthly incomes on their mortgages as of March 1 on loans that were written before Jan. 2 of this year.
Chicago-area resident Jacqueline Rodriguez has followed the bill’s progress through the House and Senate, but the mortgage rescue provisions may not begin in time for her. Personal circumstances forced Rodriguez to refinance a fixed, low-interest rate loan into an adjustable-rate mortgage three years ago. She is now five months behind in her mortgage payments and has attended a series of foreclosure-prevention workshops offered by Neighborhood Housing Services.
“I don’t know if I can wait until Oct. 1,” she said.
The bill, known as the Housing and Economic Recovery Act of 2008, allocates additional funds for groups such as Neighborhood Housing Services to hire more counselors to assist struggling homeowners.
The legislation also aims to turn more renters into homeowners by providing a temporary $7,500 tax credit to qualifying first-time homebuyers who buy homes between April 9, 2008, and July 1, 2009. However, the tax credit must be repaid, either over 15 years or when the home is sold.
Sherri Campbell, a suburban Chicago resident, has been looking to buy her first home for some time and would easily qualify for the tax credit. While she likes the theory of the tax credit, she is not sure if she will seek it. “It would be 100 percent ‘I’d take it’ if I didn’t have to pay it back,” she said.
The legislation increases the loan limit for mortgages insured by the Federal Housing Administration to a maximum of $625,000. But at the same time, the bill raises to 3.5 percent the amount of down payment a buyer must make to get an FHA loan.
“Is it going to resolve everything? No, we were hemorrhaging. This a good bandage,” said Paul Bertsche, a CA Development vice president.
One other downside of the legislation from the homebuilders’ perspective is the decision to no longer allow home sellers to offer down payment “gifts” to buyers who seek FHA loans.
Consumers are demonstrating some interest in the measure on a Web site, www.federalhousingtaxcredit.com , that went live Wednesday. Besides helping homeowners, the law provides temporary authority to the Bush administration to offer the struggling mortgage-finance giants Fannie Mae and Freddie Mac an unlimited line of credit, a move designed to calm global concerns about the government-sponsored but investor-owned firms, which guarantee nearly half of all outstanding mortgages in the United States. The law also will establish a new regulator for Freddie and Fannie and overhaul the Federal Housing Administration.
The Washington Post contributed to this report.
