Foreclosure Rescue Bill Passes – But Is It Good News for California?
Yesterday, the American Housing Rescue and Foreclosure Prevention Act (HR 3221) bill passed the House of Representatives. After reversing his earlier decision to veto this bill, calling it a bailout of irresponsible buyers and again demonstrating his incredible levels of sensitivity to the plight of the American people, George Bush is expected to sign it into law soon.
Provisions of this act include aid for returning veterans, a bailout for Fannie Mae and Freddie Mac which backs or owns about $5T in US mortgage loans, and a permanent increase in cap for FHA loans to $625,000. It will help roughly 400,000 Americans facing foreclosure to refinance into affordable loans, and keep their homes. It also establishes a Fannie Mae and Freddie Mac backed aid package for hard hit neighborhoods – which is the bitter pill the Republicans didn’t want to swallow, and a $180M package for preforeclosure counseling. But only primary residences are eligible for the new loans, meaning investors and those with second and third homes will not be able to ride the benefits on taxpayers dollars.
The bitter pill for California was eloquently detailed yesterday in the Square Feet blog - the economic stimulus package passed earlier in the year raising the conforming limits to $729,750 from $417,000 but this increase is set to expire at the end of 2008. Instead of the permanent increase to this level Californians were hoping for, FHA limits will be decreased to $625,500. In the South Bay, that limits you to poorer areas of San Jose or Sunnyvale, or to condos, mobile homes, or townhouses. Those with larger homes or who are in more affluent areas who lost their jobs due to the economic downturn will probably still lose their homes.
According to Nancy Pelosi, this bill is a great thing and provides support for many. My personal thoughts are that this bill dramatically comes to the aid of the lower classes, but provides little or nothing for California’s large middle class, which is a traditional Democratic way of approaching a crisis. It is also an attempt at a “one-size” fits all solution to a problem that has many different faces that manifest regionally. California and Florida appear to have different needs in this crisis.
It is very positive that the Democrats and Republicans were able to work together and get SOMETHING done – which is a giant step in the right direction. I can only hope that regional and state governments will step in and help their people with the specific needs that arise in their unique parts of the country.
Colin said:
The fact that deomcrats and republicans could work together on something is probably a bad sign. The rush to do “something” in an election year is probably going to be regretted by each and every taxpayer down the road. And the last time we saw such unanimity on a major issue? The vote the authorize the war in Iraq…
July 27, 2008 10:40 AM
David said:
If you’re buying a $1M house, I don’t feel too sorry for you if you have to pony up another $100K to get that “jumbo conforming” loan limit.
I suspect this will add to the pressure on overpriced ‘hoods where the prices really should not be $1M, i.e. Sunnyvale (flat, boring, why should a 2/1 1958 rancher be $1M???)
July 27, 2008 9:43 PM
Red said:
To afford payments on a Mortgage of $625,000, plus property taxes, a buyer really should have an income of more than $150,000. 2006 median family income in San Jose was only $83,000.
Prices for homes ARE dropping back to an affordable range as buyers can no longer indulge in short sighted bidding wars. Limiting loans to those who have the discipline to save a down payment will both reward them, and prevent another foreclosure disaster.
July 28, 2008 6:09 PM
Brenda Keener said:
Yes, but what about the people who were duped into believing they COULD afford these homes by greedy realtors who are now losing them? FHA could help many of them refinance. New buyers still have to cough up 3%, and with rising gas and food prices, the traditional 20% would take many buyers into retirement before the down could be saved. We need to incentivize inventory reductions, and quickly, to save our economy.
And I don’t think this was just a leap to “do something” in an election year. This situation was critical, and something had to be done.
July 28, 2008 10:56 PM
Colin said:
The reality is that until prices revert to historic norms versus incomes/rents, the market is unlikely to recover. Quite simply, new buyers in the market can’t afford current prices. Imo, all these schemes will fail – and prolong the pain – because they ignore that reality and attempt to prop up prices and keep people in their homes that they really would be better off being foreclosed on.
July 28, 2008 11:56 PM
brenda.keener said:
If nothing is done to help people to stay in their homes, the number of renters vs home owners will continue to increase. Much needed tax dollars for our schools and local governments will continue to decline. Perhaps we cannot completely stop the whirlwind, but we can help to ease its fury.
July 29, 2008 6:52 AM
David said:
The local gov’ts will need to learn how to live within their means like the rest of us. There’s no reason that budgets for even relatively conservatively run towns like San Leandro needed to double over the past 10 years when population went up a grand 2% total over that same timeframe. Less property taxes? Fine.
Don’t get me started on wasted school funding.
As for people losing their homes because of “duping,” again, that’s hard, but plenty of people lost $$billions due to crooked stock brokers in the late ’90’s, yet never got a dime in recompense.
Ultimately, lower prices will help re-align our economy by putting investment dollars to more productive uses than importing a bunch of granite from China and Brazil. Furthermore, lower prices in California will help our economy by making it more attractive for employers and employees. It’s impossible to “sell” California to, say, a company currently in North Carolina, Colorado, or heck, even Massachusetts given our current cost of living AND tax burden.
July 29, 2008 9:31 AM
Colin said:
What’s wrong with the number of renters vs home owners continuing to increase? If you look at graphs of home ownership percentages, you’ll see that the bubble years coincided with a marked increase in the percentage. Perhaps the blunt reality is that many people bought homes that they simply were financially unprepared for?
Btw, rental properties pay taxes too!
July 29, 2008 9:56 AM
Philip Kaake said:
Brenda: Greedy Realtors, what about aggressive mortgage brokers, lack of oversight on mortgage backed securities and a little personal responsibility on the part of the people who took out these loans knowing that they would eventually reset. I mean WTF why is it people like to throw stones at the agents who were working with people who wanted a home. That comment is just f*&cking rediculous.
July 29, 2008 4:07 PM
brenda.keener said:
In response to all these comments – first of all, many of the people who bought using ARM loans expected that their income would go up when the mortgage adjusted upwards. Optimistic? Yes, but in inflationary times, this has happened. Secondly, renters don’t pay PROPERTY taxes which help to keep our schools afloat. Do schools waste money? Some do and some don’t – but ALL are being hurt by this crunch.
I have a hard time seeing how lowered prices – and the lowering of an entire industry will put our investment dollars to better use. Care to enlighten me?
August 6, 2008 10:34 PM