House Passes Bills to Help Homeowners Avoid Foreclosure
Washington, D.C. - Today, with Congressman Sherman’s strong support, the House of Representatives passed a package of housing and tax bills that will provide crucial relief from foreclosure to many San Fernando Valley homeowners who are struggling to pay their mortgage loans.
"I am very pleased that the House has taken this important step to help more families refinance out of bad loans so that they can stay in their homes and avoid foreclosure. The package of bills that we passed today is crucial to stabilizing the housing market, protecting property values, increasing homeownership opportunities, and addressing the credit crisis," said Congressman Sherman.
H.R. 3221, The American Housing Rescue and Foreclosure Prevention Act of 2008, would use the Federal Housing Administration (FHA) to guarantee up to $300 billion in new mortgages to refinance borrowers at risk of foreclosure into viable loans that they can afford. Willing lenders would write down their existing mortgage loans to 85% of the current appraised value of a homeowner’s property, and the borrower would receive a new FHA-insured loan. To qualify for such a loan, borrowers would have document their income and their ability to repay the new proposed loan under the FHA’s prudent underwriting standards.
The bills would also permanently increase the loan limits for San Fernando Valley loans eligible for purchase by Fannie Mae, Freddie Mac, and for insurance by the Federal Housing Administration (FHA) to the ceiling of $729,750 previously established for 2008 in the Economic Stimulus Act. Unless these bills become law, on January 1, 2009, the single family home conforming loan limit for Fannie Mae and Freddie Mac would return to $417,000 and the FHA loan limit would fall to $362,790.
"Allowing the temporary 2008 loan limits to expire would be a catastrophe for the Valley. It would significantly reduce the number of San Fernando Valley homeowners with access to the lower-cost financing that comes from having their loans purchased by Fannie Mae and Freddie Mac. It also would return the FHA to irrelevance for most prospective San Fernando Valley homebuyers and homeowners," said Sherman.
The plan requires both homeowners and lenders to take responsibility. In order to qualify for refinancing and new government backed mortgages, lenders and mortgage investors will be required to take a loss, and borrowers must share any profit from the resale of a refinanced home with the government. Additionally, the new plan is open only to owner-occupied homes. Speculators, investors and vacation/second-home owners are not eligible.
H.R. 3221 gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years), and an increased standard deduction of up to an additional $700 for property taxes for those taxpayers who do not itemize on their returns.
The House also passed H.R. 5818, The Neighborhood Stabilization Act of 2008, which provides $15 billion in loans and grants to states to acquire vacant, foreclosed homes. The legislation will allow local communities to rehabilitate foreclosed properties, which currently drive down the price of surrounding properties, and place the homes back on the market as affordable housing.
This package now returns to the Senate for further consideration. A presidential veto is possible.