Monday, August 04, 2008

UNCLE SAM’S HOUSING BAILOUT TO AID CASH-STRAPPED HOMEOWNERS

Uncle Sam’s financial muscle is being directed to the impending bailout of the home-loan industry because the nation’s housing market is the well-spring of the U.S. economy, experts say.

To ease the greatest housing crisis since the Great Depression, Congress has approved a multi-layer $300-plus-billion dollar bailout plan to aid 400,000 families facing mortgage foreclosure—including 8,157 Illinois families losing their homes.

After initial opposition, even President George W. Bush now agrees the sweeping plan is necessary. Too bad the fix took so long. The key provisions of the plan, which essentially will bail out Fannie Mae and Freddie Mac, along with troubled mortgage companies which funded risky sub-prime loans, calls for:

• Giving a modernized Federal Housing Administration (FHA) $300-billion in new lending authority to provide affordable fixed-rate 30-year mortgages to 400,000 debt-ridden homeowners. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac.

• Keeping mortgage-finance giants Fannie Mae and Freddie Mac afloat at a potential $25 billion cost to taxpayers. The plan also would raise the loan limit on mortgages purchased by the agencies to $625,000 in high-cost areas.

• Providing $15 billion in housing tax breaks, including aid to low-income housing. Under the bailout legislation, single homeowners who do not itemize will be allowed a new $500 deduction for property taxes; married couples filing jointing who do not itemize would receive a new $1,000 deduction for property taxes.

Under the new legislation, low and middle-income first-time buyers purchasing a primary residence will be eligible for a federal tax credit of $7,500, or 10 percent of the purchase price of a home, which ever is smaller. There is a catch. Buyers will have to pay back the credit over the next 15 years in equal payments on federal taxes.

• Granting $4 billion to states to buy and rehab foreclosed homes. With many of the Chicago foreclosures clustered on the South Side and West Side, the rehab money would prevent further neighborhood decay, experts say.

According to the Congressional Budget Office, the total cost to taxpayers for the bail out plan is expected to reach $41.7 billion, including $4.6 billion for first-time home buyers, $5.3 billion for more affordable housing, $729 million for home-loan insurance, and $210 million for counseling for homeowners facing foreclosure.

While apartment industry officials commended Congress on its passage of a housing stimulus package, the National Muti-Housing Council and the National Apartment Association argued for a more balanced housing policy that encourages a vibrant rental market along with a functioning ownership market.

“A wide variety of housing analysts have been warning as far back as 2004 that the nation would likely pay a high price for its ‘homeownership at any cost’ housing policy,” said Jim Arbury, NMHC/NAA senior vice president of government affairs. “Now we are seeing the consequences of that misguided policy.”