The Senate voted heavily on favor of a mortgage rescue bill last Thursday, but House leaders are planning to rework key parts of the bill while the White House is threatening a veto.
The proposal involves the Federal Housing Administration (FHA) backing up to $300 billion in new loans, providing for more affordable, fixed-rate mortgages. The idea is to avoid foreclosures, not only for homeowners, but for the lenders, who would agree to take on a substantial loss but could reclaim some of the money.
New U.S. Secretary of Housing and Urban Development Steve Preston, who oversees FHA, told The Washington Post that he was concerned about the FHA taking on riskier loans than it normally would. He told reporters that if safeguards are not in place, the agency could be overwhelmed financially.
The administration wants Congress to allow FHA to charge borrowers insurance premiums based on credit risk, changing a system that's been in place since the New Deal agency was created in 1934. These premiums cover losses tied to defaults and foreclosures. The FHA must break even each year by law, so it must collect as much in premiums as it pays to cover losses related to foreclosures.
Democrats don't agree over some parts of the proposal, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy, the Associated Press reported. The Senate measure sets them at $625,000, while House leaders want the cap as high as $730,000.
The proposal also calls for $14.5 billion in housing tax breaks. A credit of up to $8,000 for first-time home buyers is included. Another provision would include a tax benefit for homeowners who don't itemize on federal tax returns. Those people could earn $500 to $1,000 in a âstandardâ annual deducation for the property taxes they pay but can't write off under current rules, RealtyTimes reported.
Housing foreclosures nationwide were up 50 percent in June compared with the same month in 2007 but were down 3 percent from May, according to figures released today from Irvine, Calif.-based RealtyTrac Inc., the Detroit Free Press reported.
Preston, speaking Wednesday to the Detroit Economic Club, said a market recovery won't take place until next year at the earliest. That's because another $150 billion in subprime adjustable rate mortgages are resetting to higher interest rates in the next 18 months, the Free Press reported.