June 25, 2008
The New York Times reports today that the Senate is close to passing a support bill for the housing crisis. The full report is here but here are some key elements of the bill:
The centerpiece of the Senate package is a rescue-refinancing plan aimed at stemming the tide of more than 8,000 new foreclosures a day that lenders are filing across the country. The plan would allow distressed borrowers and their lenders to stem losses by allowing qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee.
The legislation would also provide benefits for first-time buyers, who would receive a refundable tax credit of up to $8,000, or 10 percent of the value of a home, on purchases of unoccupied housing.
As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets, making it easier for borrowers to obtain mortgages at discounted rates. Despite a presidential veto threat, the package received overwhelming bipartisan support, clearing by 83 to 9 a crucial procedural vote in the Senate on Tuesday morning.
Final passage of the bill was snagged temporarily in the Senate Tuesday evening because of a fight over renewable energy tax credits. Still, major supporters of the bill said they hoped it would be completed before for the holiday.
“There’s a great desire to act,” said Representative Barney Frank, Democrat of Massachusetts, the bill’s main author in the House. “We’re just not there yet.”
The bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and would establish stricter disclosure rules to require lenders to make plain the maximum monthly payment for a borrower with an adjustable rate loan.
The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. The fund will cover any expenses related to the foreclosure rescue plan for three years, and will be used to create affordable rental housing.
Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible. Lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value.