Congress Acts as Mortgage Crisis is Straining the American Economy
On May 8, 2008, the House passed the most comprehensive response yet to the American mortgage crisis.
The package of housing measures will help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process. As most Americans’ primary investment is their home, ending the foreclosure crisis is vital to the American economy's recovery.
Learn more from our Housing Foreclosure Crisis page>>
Report: Stabilizing Housing Is Key to America’s Economic Recovery>>
FHA Rescue and Neighborhood Stabilization (H.R. 3221 and 5818)
- Provides mortgage refinancing assistance to keep families from losing their homes, protect neighboring home values, and help stabilize the housing market.
- Expands the FHA program so that borrowers in danger of losing their home can refinance into lower-cost government -insured mortgages they can afford to repay. This legislation will help troubled borrowers avoid foreclosure while minimizing taxpayer exposure.
- Protects taxpayers by requiring lenders and homeowners must take responsibility. This is not a bailout; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.
- Makes $15 billion in loans and grants to states to acquire foreclosed homes standing empty, to rehabilitate foreclosed property, and to restore home values in neighborhoods hit hard by the crisis. (H.R. 5818)
The bill would establish a $15 billion, HUD-administered loan and grant program for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible. One half of the funds ($7.5 billion) would be in loans, and the other half ($7.5 billion) would be for grants.
- Rehabilitating and buying vacant homes in high foreclosure states. The bill allocates the loan and grants based on the State’s percentage of foreclosures over the last four calendar quarters and the number of subprime loans delinquent over 90 days. States then allocate funds to government entities or for profit and nonprofit organizations for the purchase, rehabilitation, and resale of housing to sell and the purchase, rehabilitation, and operation of rental housing.
- Government will recoup loans and profits from home sales. The zero-interest loans will finance acquisition and rehabilitation costs. The federal government would be paid back from resale or, in the case of rental properties, refinance proceeds. Loans for homeownership properties must be repaid within three years. For rental properties, the maximum loan term is five years. The federal government would receive up to 50 percent of any appreciation a property owner realizes at resale.
- Targets housing to low-income families and families striving to get into the middle class. Homes must be sold to families with incomes that do not exceed 140 percent of local area median income (AMI). Rental housing must serve families having incomes at or below local AMI. Preferences will be given to activities serving the lowest income families for the longest period and homeowners whose mortgages have been foreclosed. They may focus on otherwise eligible first responders, veterans, public school teachers, workforce, and homeless persons. At least 50 percent of the grant money must be targeted to families at or below 50 percent of local AMI, and not less than half of this money must target families at or below 30 percent of local AMI.
- Neighborhoods face rising crime and increasing need for services. “In 2005, a Federal Reserve Bank of Chicago study (.pdf) found that “higher foreclosure levels do contribute to higher levels of violent crime.” This increased crime burdens states, cities, and towns with dramatically increased costs to secure abandoned homes and provide police, fire and other services, and with even lower home values. There are widespread reports of increased crime in high foreclosure areas (Washington Post, 4/27/08).
- State and local governments face lost tax revenues and jobs. One study estimates that in just 10 states (AZ, CA, FL, GA, IL, MA, MI, MN, NV, NY), lost tax revenue in 2008 will total $6.6 billion due to foreclosures. Further, an estimated 524,000 fewer jobs are projected to be created this year because of the foreclosure crisis. [Global Insight, The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas, November, 2007]
The American Housing Rescue & Foreclosure Prevention Act, H.R. 3221
This package includes a number of bipartisan bills, including measures called for by the President (FHA Modernization and GSE Reform). The centerpiece of the legislation will help significant numbers of hard-working American families in danger of losing their home refinance into lower-cost government -insured mortgages they can afford to repay.
Amendment 1
FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830)
- Provides mortgage refinancing assistance to keep families from losing their homes, protect neighboring home values, and help stabilize the housing market.
- Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government -insured mortgages they can afford to repay. This legislation will help troubled borrowers avoid foreclosure while minimizing taxpayer exposure.
- Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
- Protects taxpayers by requiring lenders and homeowners to take responsibility. This is not a bailout; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.
- Contains important protections for taxpayers’ dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.
- Provides $230 million for financial counseling to help families stay in their homes.
FHA Modernization (H.R. 1852)
- Expands affordable mortgage loan opportunities for families (many of whom would otherwise turn to subprime lenders) and for seniors through expanded access to reverse mortgages through Federal Housing Administration reform
- This measure passed the House in September. (Expanding American Homeownership Act of 2007, H.R.1852)
GSE Reform (H.R. 1427)
- Strengthens regulation of Fannie Mae and Freddie Mac, and the Federal Home Loan Bank system.
- Raises the GSE loan limits for single family homes in high cost areas, so that these entities can purchase more loans in higher cost areas (thereby lowering interest rates for new homes and refinancings in those areas).
- Expands liquidity in the mortgage markets by buying loans already made, freeing up money for new mortgages and refinances.
- Creates a new Fund to boost the nation’s stock of affordable rental housing.
Encouraging Mortgage Modifications (H.R. 5579)
- Mortgage servicers are concerned about the threat of investor lawsuits if they help families in danger of losing their homes with loan modifications that reduce monthly mortgage payments through lower interest rates, reduced principal amounts or other changes in loan terms.
- To speed loan modifications and keep more families in their homes, this package includes HR 5579 to provide mortgage servicers with clarity and certainty for their actions, and protection from such lawsuits for specified loan modifications.
Preserving the American Dream for Our Nation’s Veterans
- Increases VA Home Loan limit, as was done in the stimulus package, for high-cost housing areas so that veterans have more homeownership opportunities.
Amendment 2-- Tax Provisions to Expand Refinancing Opportunities and Spur Home Buying (H.R. 5720)
This amendment provides $11 billion in tax benefits, including tax credits to first-time homebuyers, a real property tax deduction for non-itemizers, an additional $10 billion in mortgage revenue bonds for states, and improves access to low-income housing.
- Gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market. The credit will begin to phase out for taxpayers with adjusted gross income in excess of $70,000 ($140,000 in the case of a joint return).
- Provides taxpayers that claim the standard deduction with up to an additional $350 ($700for a joint return) standard deduction for property taxes in 2008.
- Temporary increase in mortgage revenue bond authority to allow for the issuance of an additional $10 billion of tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing.
- Temporary increase in low-income housing tax credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.
- Helps returning soldiers avoid foreclosure by lengthening the time a lender must wait before starting foreclosure, from three months to one year after a soldier returns from service.
- Would not add to the national debt. The cost of this bill is offset with a tax compliance provision included in the President’s Budget and by delaying the effective date of a tax benefit for multinational companies that has not yet taken effect.
Amendment 3
- This amendment protects the right of states and cities to regulate the foreclosure process and the treatment of foreclosed property -- by clarifying that this act, the National Bank Act, and the Home Owner’s Loan Act do not preempt State foreclosure laws for national banks or federally chartered thrifts.
- Exempting national banks and thrifts from foreclosure law would deprive the states and cities of the right to require that foreclosures must follow certain procedures, including notice to the people foreclosed, and that foreclosed property be safely maintained.
- Many in the industry and in the Bush administration argue that national banks should be exempted from these rules. There is no reason that national banks and federal thrifts should be treated differently from all other mortgage holders when it comes to how to foreclose and how to maintain foreclosed property.