By Joel Hall
With the blessing of President George W. Bush, House Resolution 3221, also known as the American Housing Rescue and Foreclosure Prevention Act, was signed into law this week.
The expansive bill, co-authored by U.S. Rep. David Scott (D-Ga), will pump $300 billion into the Federal Housing Administration (FHA) in order to insure home-buyer loans and create a series of incentives to protect lenders and borrowers.
Scott said the resolution is "the most significant bill in many years" to pass through both the House and the Senate to be approved by the president. He believes the bill will "restore confidence and calm to the financial markets" and give "immediate help" to more than 400,000 homeowners across the country, particularly in the Southern Crescent.
"Housing markets are low, investor confidence is weak, and this bill was needed immediately to stop the hemorrhaging on those two points," said Scott. "It's designed to calm the rocky financial markets, to restore investor confidence in the housing market, and to keep American families, who are most at risk, in their homes by allowing them to refinance their homes with their lenders at a reduced amount."
HR 3221 addresses the housing foreclosure crisis from many angles. Among the many incentives offered in the bill are:
· If a lender agrees to reassess a borrower's loan at 90 percent of the current value of the property, the FHA will insure the loan so the lender receives its money if the borrowers defaults.
· The FHA is authorized to insure properties valued at up to $625,000, whereas before the bill the limit was $475,000.
· Nearly $4 billion will be set aside for Community Development Block Grants (CDBGs), through which county and city governments can redevelop blighted areas.
· The U.S. Department of the Treasury has been given temporary standby authority to open up a line of credit to Fannie Mae and Freddie Mac, two government-sponsored loan agencies, which together finance half of all American home loans. The Treasury Department also has the ability to buy stocks in the companies, in case of a sudden and dramatic drop in investor confidence.
· $180 million has been set aside for foreclosure and legal-aid programs to help citizens navigate through foreclosure, and learn how to avoid it in the first place.
Scott believes the bill will restore lender confidence because lenders "will not be left holding the bag."
"Because of the falling housing values ... homeowners find themselves in the position of owing their lenders more than their houses are worth," said Scott. "If [a lender] takes that and writes a new loan that is worth no more than 90 percent of the home's present value, then the FHA will insure this new loan. The federal government guarantees you that you will get that 90 percent if the lender defaults."
David Barton, vice president, government affairs, of the Metro South Association of Realtors, said the bill has its positives and negatives. He said it will eliminate some down-payment assistance programs and may create an environment where there are "no consequences to our actions" in regards to borrowing. He added that some lenders believe the bill puts them at a disadvantage.
However, he believes the program will "calm the volatility" of the market and will greatly reduce predatory lending, as well as irresponsible borrowing -- two factors he believes have contributed to the housing crisis.
Under predatory lending schemes, lenders "didn't have to verify employment, income or anything," said Barton. "They just had to show up to the closing with some money and they could have gotten just about any kind of loan they wanted to.
"The FHA requires that you prove your income," Barton added. "It will get back to the basics of the mortgage lending industry."
Clayton County, hard hit by the foreclosure crisis, could gain much from the resolution. Board of Commissioner Chairman Eldrin Bell said it will help solve a "broad spectrum" of issues in the county. We were moving in that direction, but this is, indeed, a shot in the arm," said Bell. "This can only serve to increase the values of properties in Clayton."