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With much fanfare and hype the housing bill is all set to mitigate the foreclosure crisis. But how far will it help whom? That is the big question.
The important clauses in the bill are targeted to help the house owners and also to help Fannie Mae and Freddie Mac from sinking. It is estimated that about 400,000 foreclosed borrowers will be able to refinance into a traditional loan of 30 years with fixed interest rate. The Federal Housing Administration will back these new mortgages. Operations will take off from 1st October 2008 and will terminate on 30th September 2011
To qualify for such a loan the borrowers will have to spend 31% of their income on the house mortgage. If they later decide to sell the house then the government will chip into part of the profits.
Lenders too will have to play their part by agreeing to waive off a considerable part of the principal loan. The sum allotted for the mortgages is $3 billion.
Incentives are being offered to those who buy a house for the first time in the form of refundable tax credits up to $7,500 for houses bought between 9th April 2008 to 1st April 2009.
The bill has sanctioned $180 million towards financial counseling for those house owners who are at risk from foreclosures.
The loan limit of FHA has been raised from 95% to 115%. A grant fund of $4 billion has been set aside for local bodies to buy and renovate foreclosure houses in areas that have the highest number of foreclosures.
Fannie Mae and Freddie Mac would not come under the supervision of a new regulator. The Federal Loan Banks will also be regulated and supervised by new regulations.
The Federal debt limit has been raised from 49.8 trillion to 410.6 trillion. The question that arises – is the bill comprehensive enough to tackle the worst financial crisis in decades that has beset the nation? Some say that this bail out, funded from the pockets of the taxpayer will fail to reverse the trend. The bill is about to be signed by the President. It is sweeping in its aims and ambitions – giving relief to house owners, incentives to purchases, help to lenders and support to government supported bodies like Freddie and Fannie. But will those who really need help be benefited? The answer depends on whether it comes from fans or skeptics!
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