Housing bill likely to have limited effect

WASHINGTON – The sweeping housing bill passed Wednesday would ease some of the market’s problems but provide only modest benefits for homebuyers or borrowers facing foreclosure.

After months of negotiations between House and Senate lawmakers and the Treasury Department, President Bush dropped his opposition. While the bill was widely praised by real estate industry groups, doubts remained 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 stanch some of the downturn, but it’s going to have a very modest positive impact.”

The highlights of the bill 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 home buyers.

But 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.

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

Cash-strapped 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, home buyers 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 Wes 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, investors’ 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. Soaring 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 are an effort by banks to 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.”