What Does the Proposed Housing Bill Do to Help the U.S. Subprime Mortgage Problems?

Yesterday, congress reached a compromise bill to provide aid to those facing foreclosure or already in the midst of a foreclosure. This $15-20 billion dollar bill (all puns intended) will attempt to help deflate the housing bubble in a more controlled manner, and try to prevent the U.S. economy from going into (more) of a tailspin.

Debate has been going on over one particular point; The ability of bankruptcy judges to unilaterally modify the mortgage agreements for those filing bankruptcy. Ultimately, to get the bill to a point where it even had a HOPE of passing, it had to be removed from the proposed bill. That means that even with bankruptcy proceedings, the most that can happen is to restructure the existing debt. If the person(s) filing bankruptcy can’t pay for the house under ANY means, it’s still going back to the bank.

What the Bill Does

There’s a number of things the bill will allow to happen to help those that are about to lose their homes, and to help others and the economy deal with the existing HUGE backlog of foreclosed properties. As written (and remember, it’s still in the debate phase, so things can change, or the president could veto it entirely)

Provide a $7000 tax credit, split over two years, for buyers of homes that are about to go to foreclosure or already in foreclosure.
The issuance of $10 Billion worth of tax-free bonds, with the proceeds to go to help refinance mortgages in trouble (the criteria or selection process hasn’t been completely explained yet).
The net operating loss carry-back tax rule for 2008-2009 would be extended by two years. That means that related industries (contractors, builders, materials suppliers and a whole myriad of other businesses related to the housing market) could write off their losses over 4 years, instead of the standard 2. It might make the difference between surviving and bankruptcy to some smaller businesses to do this.
Provide existing homeowners with a standard tax deduction of $500 for single filers or $1000 for joint filers. Finally, a little reward for keeping yourself in check!
The FHA loan limit would rise to 110 percent of an area’s median home price, with a cap of $550,000 and a 3-1/2 percent down payment required from the borrower. This is an increase from the previous loan amounts the FHA would guarantee in years past.
Provide cities and communities with $4 Billion in federal grant money to purchase, fix up (where necessary) and resell foreclosed houses in the area. This is to prevent many of the ‘housing deserts’ that are starting to crop up in some cities; Large tracts of either unsold houses, or houses that have been foreclosed on, causing the surrounding area to be virtually abandoned.
Provide for debt counseling; $100 million would go to provide free ‘Mortgage Counselors’ (already free through the FHA, but in limited numbers) to work with families to find alternatives to foreclosure, and to negotiate with lenders on the borrowers behalf to try to broker a better mortgage deal.
Put in place a stipulation for lenders to follow special procedures for U.S. Armed forces members coming back from combat. This would hopefully allow our returning military members the chance to have some breathing room and get their affairs back in order before any dire financial actions would be taken by the lenders. Another great provision of this bill, in my opinion.
Require lenders to MAKE the borrowers read and understand what they are getting into when they get a mortgage. (If this had been in force before, I’m betting a lot of the Adjustable Rate Mortgage buyers might have thought twice before getting into their situations).

Who Foots the Bill for the Bill

Of course There Ain’t No Such Thing as a Free Lunch (TANSTAAFL) and this is no exception. It’s going to come out of taxpayer money. If you’ve visited before, you know I’m none too fond of the idea of paying for someone else’s mistakes on the mortgage front, but there is a point where you just have to bite the bullet and do what’s in the best interest of the country. I think we’ve reached that point, and maybe a bit beyond. This housing bubble, no matter who’s fault it is or how it was triggered, has grown to the point that it threatens to do some serious damage to the U.S. economy, and by extension, the entire world economy.

Sen.’s Clinton and Obama are both in favor of pretty powerful legislation (see above) to stem the flow of financial blood from this wound, while Sen. McCain is in a more ‘let the industry correct itself’ opinion. I think that either solution might be a little too far (in either the liberal or conservative directions), but this bill being discussed is starting to sound like an acceptable compromise to do what has to be done for our economy,

This may be just the first legislation (with more to come) to address the housing crisis, but something substantial needs to be done before the patient (the U.S. economy) bleeds out from all the financial problems. Even a band-aid at this point would be an improvement.

What do you think about the proposed housing bill? Too much, or not enough?? What would you add to it if you could? Leave us a comment and let us know.