What is the Foreclosure Prevention Act?
May 12, 2008
Homeowners may have heard of the Foreclosure Prevention Act that is being considered in Congress, but may not know what it is. In brief:
The Foreclosure Prevention Act is actually fairly far along in the political process. It would modernize FHA loans, increasing the agency’s mortgage limit to $550,000.
If passed, the bill would provide for pre-foreclosure counseling, as well as $10.9 billion in mortgage revenue bonds for loan refinancing. It also allows $25 billion in tax breaks to home builders, as well as domestic airlines, automakers and other manufacturers. The bill would encourage purchases of already-foreclosed properties, with $4 billion in grants for communities to buy foreclosures and a $7,000 tax benefit for people who buy those properties.
The bill is not without problems as some would say. “Big tax breaks for home builders is the centerpiece, which we think is atrocious,” said Paul Leonard, West Coast director for the Center for Responsible Lending. “It’s a triumph of lobbying over need,” said John from the Heritage Foundation. Most consumer advocates support the FHA reform and counseling money.
Changing the nation’s current bankruptcy laws is the single change that consumer advocates would like to see. But this aspect of the bill is facing fierce industry and Republican opposition.
The proposed change would allow bankruptcy court judges to modify terms of a mortgage, such as writing down its principal to whatever the house is currently worth, lowering the interest rate that is being charged, or changing the length of the contract.
Banking industry experts say those changes would erode lenders’ confidence in mortgages by making the collateral less dependable. The bill is still being considered.