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Legislation Will Ease Mortgage Woes
by Senator Kay Bailey Hutchison
Published in the San Antonio Express News April 14, 2008
Falling home prices can be unnerving to all homeowners, even those whose mortgages are not in danger of foreclosure. The fact is that most borrowers have made responsible investments and make their house payments on time, but falling home prices are bringing down asset values, and with it, the overall economy.
As a result, American consumers are hesitant to spend and lending institutions are reluctant to grant loans. Banks are reporting record write-downs. A recent Goldman Sachs analysis projected that problems associated with the housing market will cost U.S. financial institutions about $460 billion, and will hit global institutions with a whopping $1.2 trillion in losses.
Even in Texas, where we enjoy a generally sound economy, we are not immune to the subprime mortgage crisis, or the havoc it can wreak on whole communities. In January, Texas logged the third-highest foreclosure total in the nation, with a reported 14,698 foreclosures filed – a 20 percent increase from the previous month.
On April 10, the Senate passed legislation that addresses the core issues of the subprime mortgage crisis. But there are ways we can provide some relief to those hardest hit, while continuing to allow free market economics to guide the housing market correction. In the end, what the Senate was able to negotiate wasn’t a perfect bill, but I believe the agreement we reached is a better alternative than doing nothing at all. Failure to act forces more homeowners to forfeit their piece of the American Dream and allows the housing crisis to continue to infect other sectors of the economy.
Central to the legislation is long-overdue modernization of the Federal Housing Authority (FHA), which will give Americans access to more affordable, government-backed loans. Under the package, the FHA loan limit will increase from 95 percent to 110 percent, capping home loans at $550,000. Borrowers will be required to put down 3.5 percent for any FHA loan, which will ensure that homeowners are invested in their properties. Part of FHA modernization will also emphasize educating borrowers so they understand the contracts they are entering.
The package also extends badly-needed tax relief. It allows owners who do not itemize deductions on their tax returns to claim an additional standard deduction for the amount they pay in local property taxes, up to $1,000.
The legislation extends a law allowing corporations to apply excess net operating losses to tax returns from past profitable years as much as four years back. This is especially helpful to homebuilders and others in supply chain, allowing them to receive an immediate rebate on taxes paid in previous years. It will provide businesses a needed infusion of capital.
These provisions can work in tandem with initiatives already being implemented by the housing industry, which has begun streamlining the process of modifying subprime loans and making resources more available to borrowers facing foreclosure. HOPE NOW, an alliance of private sector businesses assisting struggling homeowners, recently announced that, since July, loan modifications or repayment plans have helped more than 1 million borrowers avoid foreclosure.
The mortgage crisis presents our nation with a unique economic challenge. This problem has the potential to accelerate, with its negative effects cascading down into the lives of all Americans. It is my hope that we can help keep Americans in their homes, while allowing the housing market to correct itself and help bring stability and security to the U.S. economy.
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