Housing Bill Won't Solve Market's Problems: AP

WASHINGTON — Cash-strapped homebuyers and borrowers facing foreclosure will get some relief from a housing bill passed by the House on Wednesday but the bill won't solve the deep-rooted ills of the U.S. housing market.

The bill was widely praised by real estate industry groups but doubts remain about how much real-world impact it will have for consumers.

"This isn't going to be the catalyst for a better housing market," said Mark Zandi, chief economist at Moody's Economy.com. "It may staunch some of the downturn, but it's going to have a very modest positive impact."

The vote on the bill came after months of negotiations between House and Senate lawmakers and the Treasury Department. President Bush initially opposed it but now could sign as early as this week.

The highlights include: $300 billion to provide more affordable mortgages to troubled homeowners, nearly $4 billion in grants to help communities fix up foreclosed properties and a $7,500 tax credit for first-time homebuyers.

Andrew Lenz, a 27-year-old first-time buyer in Minneapolis, said the tax credit won't affect his decision to make an offer soon on a foreclosed townhome, but added, "Every little bit helps."

And plenty of first-time buyers won't get help.

The tax break only applies for homeowners who purchase between April 9, 2008 and July 1, 2009. The full amount of the credit also is only available for individuals with incomes under $75,000 or couples earning less than $150,000.

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Moreover, it will have to be paid back, interest-free, over 15 years.

In Baltimore County, Md., where foreclosure filings between January and March were running at nearly four times last year's levels, Liz Glenn was grateful to see the provision in the bill for $3.9 billion in grants to help local governments buy and fix up empty homes.

The money "would enable us to acquire and rehab more homes and offer them at an affordable price," said Glenn, a community planning official.

The county, which surrounds Baltimore's city limits, currently works with nonprofit developers to fix and sell up about 20 homes a year _ nowhere near enough. Maryland estimates it could receive about $30 million in funding as part of the bill, said Carol Gilbert, a state housing official.

Homeowners, who are spending more than 31 percent of their income on their house payment, may qualify for a new, more-affordable loan backed by the Federal Housing Administration under the bill.

Lenders, however, would have to agree to take a loss on the existing loans, and would walk away with at least some payoff and avoid the costly foreclosure process. Lender participation is also voluntary.

"The industry really has to step up and use it," said Bruce Dorpalen, director of housing counseling for Acorn Housing Corp.

In addition, homebuyers who purchase a property with an FHA loan will no longer be able to receive financial assistance from the sellers. The bill closes a loophole that let sellers channel money to buyers through charities.

While critics say defaults from these no-money down loans are rising to such an extent that they threaten to put taxpayers on the hook, supporters say many borrowers with good credit but without enough money saved up for a down payment will be locked out of the market.

"That's going to cause a lot of people not to be able to buy a house," said Mike Davis, a Realtor in West Des Moines, Iowa. "That's really going to hurt."

In a move to shore up mortgage finance companies Fannie Mae and Freddie Mac, the bill allows the government to buy stock in them and extends a line of credit to the companies.

Over the past week, investor fears about the health of Fannie and Freddie, which buy or guarantee about half of the nation's mortgage loans, have rippled through the market, causing a sharp rise in mortgage rates since late last week. Rising rates mean more trouble for the housing market as fewer borrowers are able to afford the higher monthly payments.

Average rates on 30-year fixed rate loans under $417,000 have soared to more than 6.8 percent _ the highest rates in a year, according to data publisher HSH Associates.

Besides worries about Fannie and Freddie's future, rising rates reflect an effort by banks recapture money lost on mortgages made in 2005 and 2006.

Keith Gumbinger, a senior vice president with HSH Associates, said, "You have to offset those losses some way or another."

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Associated Press Writers Julie Hirschfeld Davis in Washington and Alex Dominguez in Baltimore contributed to this report.

Comments

[dgscol]

Eventually housing will have to be affordable, so the principle must drop. Sub-prime mortgages are just a way to keep sales going, and equity high in a failing market. This is a natural consequence of fewer people in the population and lower average incomes. There is no sense of having large value in houses that cannot be sold.

[Sundialsvc4]

One of the key and as-yet undiscussed problems is the vast amount of "inventory" that has never once been sold. They are "multi-hundred-thousand dollar" homes that have never been occupied. But they are sitting on company and bank ledgers as "inventory," listed at their sale-price.

Any objective appraiser will tell you that the price of anything is "what a willing buyer would pay a willing seller." I certainly would not pay anything-at-all for these ... things ... that are derisively called "McMansions." I'm not rich, but I'm not poor either, and this is one reason why.

Banks are vastly over-extended ... insolvent, really ... but underneath all that inflated-fluff there probably is a much-smaller-yet-viable business going on. Let's get regulators in there and start hauling the fluff away. Re-appraise those "assets."

Next, freeze the loan interest-rates; convert them from ARMs to fixed. (It's better to get something for your loan instead of nothing-at-all, and an abandoned house becomes worthless quickly.)

That changes the balance-sheet, so ... dive in. Haul fluff and illusions away by the wheelbarrow-load. Get to the bottom of this. Don't just throw "borrowed" Federal money at it.

[outnow]

25 million homes are upside down according to Bill Gross. Joseph Stiglitz is suggesting a new Chapter 11 for homeowners with a cram-down provision. Credit can be issued by the Federal Government. Get rid of the debt-based economy. There is no way to repay the outstanding debt with interest being compounded. The Fed is unconstitutional - if you read the constitution. It is just another central bank - something that Andrew Jackson and Thomas Jefferson opposed.

Just re-arranging the deck chairs on the Titanic will never do. Unless something is done soon, you will see 200 more banks and one-half of the hedge funds going under.

Stop "marking to fantasy." The derivatives could blow up into nothing. It is a house of cards and a big Ponzi scheme. A two-tier system of credit, not a debt-based fiat monetary system is what is needed. I heard The Terminator terminated Medi-Cal in California. This is worse than the summer of 1931. You have to go back to the middle of the 1400's to see the collapse of the Lombard banking system to understand that the Dark Ages are just a few months away.

[outnow]

Poverty and misery trickled down. When will they realize that inflation is the oxygen for a debt bubble? Greenspan had a tiger by the tail and didn't understand that the bubble is going to burst. A tax credit for first time buyers? What a joke. How about getting rid of the Fed?

[machivellianX]

I believe if we print enough money for everyone we can all be happy, wealthy and free........NOT!

[Erdgeist]

Who has any collateral or money left? The average American is broke. How about slapping a revenue tariff on imported goods then raising the Personal Income Tax Exemption from 3,400 to 20,000 (it has NEVER been adjusted for inflation since 1913)? This will create demand and make the economy come roaring back. Oh, also--stop the speculators and break up the oil companies. That should send oil to about 60 bucks a barrel.

[machivellianX]

yes erdgeist, you are in the 5% minority my friend, one of the few that understands that we can not fight these bubbles by increasing the money supply, adding liquidity, but the geniuses here have basically spent us into oblivion, and now instead of cutting taxes the socialists will arrive with higher taxes, maybe Paul vocker will come back with 30% interest rates, probably the only real solution left to actually save the dollar. In any event this country will see 200 more banks collapse before it's over, OR we can just print another 100 trillion dollars.

[darthdarcy]

The concept that these are loses is askew...

Most of those losing their houses are being clobbered by extremely high interest rates...as these Sub Primes balloon..to 11-14%

All we had to do to solve this national crisis is peg the Sub Primes at 3% above the Fed Rate or Prime Rate even and forgive all penalties to date 1/2 of which or more are illegal as has been reported..not to go below 6.25-6.5% then the vast majority of these people could remain in their homes and there would not be the evictions and the terrible downward pressure this is cause on the rental market...which is not being addressed by our worthless politicians...

This at best will help a few hundred thousand but over 4 million households face eventual foreclosure and eviction...that could be nearly 20 million people kids and families many of them...

It's a shame there's no one in government smart enough to argue for and think of this simple solution...but first we would have had to tell the banks and lenders there is no multi-billion dollar bail out for you..!

[JoeBlough]

How about all of us who didn't screw up? Are we going to get some free money from the government?

[applespider]

No. No, we're not. We're going to pay for all of this.