WASHINGTON — President Bush signed a closely watched housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so.
In Lexington, affordable-housing advocates applauded the new law as a tool to help low-income homeowners and protect communities from economic decline.
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”It's something that has to be done at this point,“ said Susan Blankenship, planning and research manager for the Community Action Council. ”It is absolutely necessary.“
Chris Ford, president and CEO of Lexington's REACH Inc., called the measure ”a good start. It's not a cure-all just yet, but it's a promising start.“
The legislation is regarded as the most significant housing bill in decades. It won approval from lawmakers eager, in an election year, to come up with an answer to the growing housing crisis.
”By expanding homeownership opportunities and protecting families against foreclosure, we are helping keep the American Dream alive,“ said House Speaker Nancy Pelosi, D-Calif.
In Lexington, Blankenship said the law contains tax breaks for low-income taxpayers and tightens regulatory controls that will help stem the wave of homebuyers with mortgage problems who do not qualify for existing programs offered by local groups.
”Affordable housing is always an issue for us,“ she said. The new law provides grants for communities hard hit by foreclosures and ”we hope that will be spent on trying to generate some affordable housing.“
Ford said the law will make it easier for troubled homeowners to refinance into government-backed mortgages to avoid foreclosure.
”It's going to require that lenders be willing to work with homeowners to modify (existing loans) and allow them to refinance into these government-backed tools,“ he said. ”That's going to be vital. We are going to have to see how that plays out.“
The measure also includes $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners; $3.9 billion for communities to fix up foreclosed properties causing blight in neighborhoods; and $15 billion in tax cuts, including an expanded low-income housing tax credit and a credit of up to $7,500, to be repaid, for some first-time home buyers.
The number of homeowners who could lose their homes to foreclosure by the end of 2009 is estimated by some to be around 2.8 million. Under the legislation, 400,000 having trouble with payments could avoid it by trading their loans for new, more affordable mortgages through the Federal Housing Administration.
Their banks would have to agree to allow the swap and to take a large loss in exchange for avoiding the lengthy and costly foreclosure process. To qualify, homeowners would have to be paying more than 31 percent of their incomes toward their mortgages and show they could afford to make the payments on a new, smaller loan.
The measure also is designed to help stabilize markets, in part by making credit more easily available amid rising defaults and falling home values.
The bill permanently increases to $625,000 the size of home loans in high-cost areas that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy and that the FHA can insure.