Housing, Economic Recovery Act Certain

Legislation designed to ease the housing crisis and prevent similar collapses in the future awaits President Bush's signature. Read a summary of the $300 billion "American Housing Rescue and Foreclosure Prevention Act," also called, the "Housing and Economic Recovery Act of 2008"

by Broderick Perkins
© 2008 DeadlineNews.Com

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Deadline Newsroom - President Bush's signature is expected on legislation designed to ease the housing crisis and prevent similar collapses in the future.

In the final back-and-forth between the U.S. House of Representatives and the U.S. Senate on the legislation, the House this week voted 272 to 152 to approve what's initially dubbed the "Housing and Economic Recovery Act of 2008". In a rare weekend session, the Senate followed with a 72 to 13 vote of approval on what was finally called the "American Housing Rescue and Foreclosure Prevention Act."

President Bush agreed to sign the housing rescue package after initially voicing reservations about money for local communities to buy up distressed properties.

Unfortunately, the impact of the new legislation won't be felt until administrative issues are hammered out, likely by this fall or later.

In addition to helping communities with vacant properties, the package comes with stronger regulations for Fannie Mae and Freddie Mac, tax credits for first-time home buyers and higher limits on Federal Housing Administration (FHA) loans.

Not only is the government effort expected to save an estimated 400,000 homes from foreclosure, the legislation could raise the profile of an unconventional creative financing tool and push it into the mainstream of housing finance.

The give and take in the legislative fight has always included the creation of an FHA-sponsored equity sharing program to refinance loans at a discount for home owners facing foreclosure. In return, home owners would share future equity gains with the FHA.

"The feds are about to take equity sharing to the next level," says Jeff Langholz, founder and CEO of HomeEquityShare.com, an online network that matches equity sharing partners.

According to the summary, the legislation comes with five principles.

1. Long-term affordability. The program is built on the idea that creating new equity for troubled homeowners is likely to be a more effective way to avoid foreclosures. New loans will be based on a family’s ability to repay the loan, ensuring affordability and sustainable home ownership.

2. No investor or lender bailout. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure.

3. No windfall for borrowers. Borrowers will share their new equity and future appreciation equally with FHA. Borrowers will pay for the FHA insurance.

4. Voluntary participation. This will be a voluntary program. No lenders, servicers, or investors will be compelled to participate.

5. Restore confidence, liquidity, and transparency. Credit markets frozen with risk aversion, in part, because banks and other financial institutions do not know what their subprime mortgages and related securities are worth. The uncertainty is forcing lenders to hoard capital and stop the lending necessary for economic growth. This program is designed to help restore confidence and get markets flowing again.

Learn more about equity sharing here.

Click for a copy of a summary of the Housing and Economic Recovery Act of 2008.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's where all the news really hits home.

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