Housing bill: A ray of light for struggling homeowners?

Last week President Bush signed legislation designed to shore up federally supported loan providers and bail out cash-strapped homeowners.

Last week President Bush signed legislation aimed at helping the dismal housing market, said Jennifer Loven in the Associated Press. Besides shoring up the federally supported loan providers, Fannie Mae and Freddie Mac, the bill also will bail out cash-strapped homeowners. A key $300 billion provision will allow roughly 400,000 homeowners to trade in their current mortgages for more affordable loans backed by the Federal Housing Administration. A homeowner’s bank doesn’t have to make the swap—though many will if it means avoiding fore­closure. “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.”

“Millions of people have the potential to benefit from the bill,” said Ron Lieber in The New York Times. Many home­owners are struggling, and in times like these, “there is no shame in taking advantage of what is offered.” Besides help for struggling owners and tax credits for first-time buyers, the bill includes “handouts” for longtime homeowners, returning veterans, and senior citizens who want to tap their home equity without getting hit with big fees. The law also raises the ceiling on conforming loans—those that qualify for the lowest rates—to 115 percent of the local median home price (up to $625,000). And homeowners who take the standard deduction on their income taxes will be able to claim an additional $500 for single returns and $1,000 for joint returns.

Yet some of the bill’s fine print may reduce its actual benefits for consumers, said Amy Hoak in Marketwatch.com. Take that tax credit for first-time home buyers. This “credit” of up to $7,500 is actually a sort of a no-interest loan—in other words, it has to be repaid to the government, through installments, over 15 years. “In addition to that small matter of paying the money back,” the credit probably won’t be of any help to first-time buyers who are still trying to scrape together a down payment. “The money would come after a house is bought,” which won’t do most house shoppers any good.

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