How do you help a homeowner who can’t keep up his or her payments on a home loan?
You find him or her another loan, is what you do.
So that the borrower can default on that loan, too.
At least that’s what pessimists are saying will happen following Congressional approval of the new “housing rescue” bill, which will become law once signed by President Bush.
First, what are the highlights of the bill?
Allow Holden Lewis at Bankrate.com to fill you in (along with my comments in parentheses).
* The first-time homeowner tax credit. ($7,500 “loan” to first-time homebuyers, courtesy of the US Congress (and taxpayer); must be paid back over ten years.)
* Debt forgiveness and refinancing into FHA-insured mortgages. (The “big” one – if you can convince your lender to lower your loan to what your home is worth today, the FHA will back the new loan.)
* The end of down payment assistance programs. (Sometimes homebuyers get assistance from non-profit companies to cover closing costs, etc.; these loans have a higher default rate, so the government has banned the use of them.)
* Property tax deductions, even for taxpayers who don’t itemize. (A lot of the time, you don’t have enough deductions to itemize – the new law will allow you to cut your taxable income by way of a new line on your tax form; Renting? Sorry!)
* The extension of loan-amount limits. (Higher conforming loan amounts, meaning you can borrow more, hopefully at a lower interest rate.)
Among other things.
Here’s the kicker (as pointed out by Holden, as well, but quoting columnist Dean Baker): of the estimated 400,000 homeowners who might benefit from having reduced loan payments, 160,000, or 40%, are expected to default, anyway. Again, with lower payments, the borrowers will still lose their homes.
That this may happen only raises concerns on the parts of many that this entire housing “rescue” plan is nothing but government humbug.
Worse, when those new loans do go belly-up, private industry won’t be on the hook, the FHA will be.
Backed by the full-faith and credit of the United States government.
(I didn’t much like the op-ed piece in today’s Globe written by By Chuck Turner and Merelice. It perpetuates the myth that the lending crisis is primarily the fault of banks (it’s not, it’s the fault of people buying homes they couldn’t afford) and that the primary reason for the increase in defaults is resetting interest rates on loans (it’s not; more than half of all homeowners defaulting did so before their rates reset. But don’t let facts get in the way of a good story. (Their recommendations have some merit, though.))
More: The Housing Law and You – By Holden Lewis, Mortgage Matters, Bankrate.com
Also: Bill That Will Cause 140,000 Homeowners to Face Second Foreclosure Passes Congress – By Dean Baker, American Prospect
And: Fighting the Foreclosure Crisis – By Chuck Turner and Merelice, The Boston Globe