July 31, 2008

Fox Valley housing experts are calling the Housing and Economic Recovery Act signed by President Bush Wednesday an important step toward helping troubled homeowners. But it is no cure to the ongoing housing crisis, they caution.

The legislation could help 400,000 homeowners on the brink of foreclosure with more affordable refinanced mortgages through the Federal Housing Administration.

The act includes $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners; $3.9 billion to help communities fix up foreclosed properties; 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 measure also requires lenders to show how high a borrower’s payment could get under the terms of the mortgage. Additionally, $180 million in preforeclosure counseling was made available.

Geoff Smith, vice president of the Woodstock Institute, a Chicago nonprofit organization that analyzes mortgage lending and housing market trends, said it is uncertain how much the measure will help homeowners because it is voluntary for lenders to refinance with FHA loans.

Lenders would need to write down FHA loans to 90 percent of the home’s current appraised value, he said.

For example, a home appraised at $200,000 would normally qualify for a $200,000 refinanced mortgage. With an FHA loan, lenders would have to write a $180,000 loan.

"I don’t see it as a long-term solution, but a short-term, stop-gap measure," Smith said.

"From a borrower’s perspective, it’s good. You get a fixed-rate mortgage, equity and some cushion, but the lender is taking a bit of a loss," he added.

Bob Barnes, assistant professor of economics at North Central College, agreed the measure is a temporary fix. Another type of stimulus from the government is not unlikely in the next six to 12 months, he added.

"I don’t believe we’ve actually reached the bottom. Housing prices have plunged by more than 50 percent in many cities, and we’re likely to see a continued downturn," Barnes said.

"It’s just a measure. Given the state of the housing crisis now, I don’t think there is any other alternative at this point in time" than a housing relief bill such as this.

The Aurora Tri-County Association of Realtors applauds the effort because it would offer a tax credit of up to $7,500 to first-time home buyers. In Illinois, year-over-year home sales are down 27 percent from June 2007, according to the Illinois Association of Realtors.

Betty DeRamus, director of Consumer Credit Counseling Service in Aurora, said there are still many unknowns about the housing recovery act, but she’s sure further homeowner assistance is needed.

Before the housing crisis, the service was fielding 50 requests from Fox Valley homeowners on preforeclosure counseling. Credit Counseling Service now helps 150 people a month with foreclosure prevention and mitigation.

"We thought it was going to stop, but it’s just every month it seems like we’re getting more calls," she said.

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