House OKs foreclosure help

Measure gives aid to homeowners, mortgage giants

By Julie Hirschfeld Davis, Associated Press

Wednesday, July 23, 2008

David Zalubowski / Associated Press

A foreclosure sign stands outside a Denver home in this May 2008 file photo. A bill on its way to the Senate would provide federal help for homeowners and grants for areas hit by foreclosures.

Rescue legislation sailed through the House on Wednesday aimed at helping 400,000 strapped homeowners avoid foreclosure and preventing troubled mortgage giants Fannie Mae and Freddie Mac from collapsing.

The 272-152 vote reflected a congressional push to send election- year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market.

Hours before the vote, President Bush dropped his opposition to the measure, which is on track to pass the Senate and become law within days.

The White House swallowed its distaste for $3.9 billion in grants the bill would provide for devastated neighborhoods. The Bush administration gains the power to throw a lifeline to Fannie Mae and Freddie Mac as part of the measure that also is designed to rein in the government-sponsored mortgage firms.

The administration and lawmakers in both parties teamed to negotiate the measure, which accomplishes several Democratic priorities, including federal help for homeowners, a new permanent, affordable housing fund financed by Fannie and Freddie and the $3.9 billion for hard-hit neighborhoods. The grants are for buying and fixing up foreclosed properties.

"It is the product of a very significant set of compromises," said Rep. Barney Frank, D-Mass., the Financial Services Committee chairman. "We are dealing with the consequences of bad decisions and inaction and malfeasance from years before. Obviously, it requires a joint effort.

"In a statement on the bill, the White House said parts of it "are too important to the stability of our nation's housing market, financial system and the broader economy not to be enacted immediately."

Bush had objected to the neighborhood grants, saying they would help bankers and lenders, not homeowners who are in trouble. Still, Dana Perino, the White House press secretary, said a showdown with Congress over the funds would be ill-timed.

It was a striking split for Bush and many congressional Republicans. GOP leaders denounced the housing legislation as a bailout for irresponsible homeowners and unscrupulous lenders, even as they acknowledged it was probably necessary.

"It's a bill that I wish I could support. It's a bill that the market clearly needs . . . but this is not a bill that I can support," said Rep. John A. Boehner, R-Ohio, the minority leader.

The plan also creates a regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the agency. It includes $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers.

It also increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

Lawmakers abandoned efforts to place conditions on any Fannie and Freddie rescue, but the bill hands the new regulator approval power over the pay packages of executives at the companies.

In his own words

Zachary Urban, Brothers Redevelopment, manages the Colorado Foreclosure Hotline, 1-877-601-HOPE.

Urban says the bill might help 15 percent to 20 percent of the 2,000 people who call the hot line each month.

* "The behavior that really irks people is when someone has an RV in the driveway, a brand-new car and a flat screen TV, and they're going into foreclosure because of poor consumer choices," Urban said. "But this bill is not going to be a whole lot of help to people who do not have a life vest and an anchor on each of their feet." However, other people are facing losing their homes because the value of their house has been greatly depressed by the large number of distressed homes in their neighborhood, Urban said.

* "If you wait for the government to bail you out, you end out on a rooftop in New Orleans," Urban said. "This bill is not going to be the demarcation line between foreclosures and no foreclosures. It is going to help reduce some of the friction, some of the gridlock, for people waiting on the sidelines to buy properties. It's not going to help people who made a lot of bad choices or had an overzealous appetite for properties. I think the bill, from the Fannie and Freddie sides, will bring some stability to the housing market, which it needs right now. One thing needs to be clear: No lender in his or her right mind is going to be lending right now to someone who does not show good quality, underwriting criteria."

Ryan McMaken, of the Colorado Division of Housing.

* "We're certainly supportive of any funding for housing counseling. Housing counseling is the only thing that helps people who are currently in foreclosure. That is what helps people right now."

Assistance

The housing bill Congress is preparing to send President Bush would:

* Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to debt-ridden homeowners. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.

* Give the Treasury Department temporary authority to lend money to Fannie and Freddie or buy their stock to avert a collapse of one or both of the mortgage giants. The authority expires on Dec. 31, 2009.

* Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives. Create a new affordable housing fund drawn from their profits. Permanently raise the limit on the loans they may buy - set to revert to $417,000 by the end of the year - to $625,000 in the highest-cost areas. Allow them to buy loans 15 percent higher than the median home price in certain cities.

* Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed property.

* Modernize the FHA and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure - currently set to revert to $362,790 by the end of the year - to $625,000 in the highest-cost areas. The agency could buy loans 15 percent higher than the median home price in certain cities.

* Bar the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning Oct. 1, 2008.

Place a one-year moratorium to bar the agency from charging premiums based on the riskiness of the homeowner, until Oct. 1, 2009.

* Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who purchase residences between April 9, 2008, and July 1, 2009. Allows people who don't itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes.

* Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.

* Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.

* Provide $180 million for pre-foreclosure counseling and legal services for distressed borrowers.

• July 24, 2008

  10:52 a.m.

  Suggest removal

  OpinionatedLee writes:

  The house next door went into foreclosure. The owners had matching Mercedes, took numerous vacations, and had another child; unfortunately for me, meeting their obligations as a mortgage holder was not on their priority list. I live in a very small neighborhood and that foreclosed home sold for 30% less than its 2003 purchase price. Will this bill assist me in recouping the lost equity from my home? I didn't think so.

  I pay for medical, auto and property insurance so that taxpayers will not have to pay to reimburse me should a catastrophe strike. I also pay all of my bills, including the full balance of my credit card, each month. In short, I live within my means. And I feel like such a fool.