Bill For Helping Foreclosure Victims

August 4th, 2008 | Tags: Foreclosure Victims

The recently passed housing bill is targeted mainly to help foreclosure victims. About 400,000 house owners will be able to avoid foreclosure by refinancing into new affordable mortgages. Federal Housing Administration will insure these. There are certain preconditions. The borrower’s income must permit them to continue with these loans, the house must be their primary residence and they must be willing to share the profits with the government if later on they sell the house. On their part the lenders have to agree to waive a good amount of the principal loan.

There are both fans and critics for the bill. Dean Baker of Center for Economic and Policy Research opines that 400,000 borrowers are only a minimal fraction of the total number affected by foreclosure. Hence foreclosures in general will continue to race ahead. During the second quarter the foreclosure numbers doubled to 739,714 from what it was in 2007 during the same period.

Another critic, Vogel of Tuck School says that the pivotal point is that for the refinancing to take place, is the willingness of the lender to write off a part of the loan. So the keys are in the hands of the lenders. They will keep the better mortgages for themselves and assign the inferior ones for governmental insurance backing.

Ellen Harnick of Center for Responsible Lending sits on the fence and calls the bill a mixed bag of goodies and baddies. But she too admits that the number of people who can benefit is just a drop in the vast ocean.

The first time buyers will undoubtedly benefit from the low prices as well as tax benefits. But the moot question is – is it sufficient to give a boost to the flagging market?

Lawrence Yun, of National Association of Realtors says the bill will have a ‘significant impact’ by drawing in hesitant buyers.

Many are skeptical about the ultimate result of the bill on the economy. Baker of the Center of Economic Policy and Policy Research says that the tax credit will be an incentive but on the other hand increasing mortgage rates and tight lending rules will keep out many potential purchasers. Craig Anapol, a realtor from California, echoes the same sentiments. Approximately 3 million buyers will be eligible for tax benefits according to National Association of Realtors. Already the market seems to be responding because of the entry of buyers in some regions like Boston and other cities in California.