Bill Statistics
The Middle Class Position
How They Voted
Grades
The Senate receives a grade of B for its support of the middle class on this piece of legislation.
72 Senators voted for the middle-class position; 13 voted against.
The House receives a grade of C for its support of the middle class on this piece of legislation.
272 Representatives voted for the middle-class position; 152 voted against.
See how each member voted on this bill:
The American Housing Rescue and Foreclosure Prevention Act of 2008
- Affordable Housing Trust Fund
- Consumers
- Debt & Bankruptcy
- Financial literacy
- Housing
- Mortgage lending
- Property taxes
- Tax Fairness
07.30.2007 [House]
Rep. Nancy Pelosi [D-CA]
The American Housing Rescue and Foreclosure Prevention Act of 2008 establishes a temporary and voluntary program beginning in October of 2008 to allow homeowners who are unable to afford their mortgage payments to refinance into fixed-rate, 30-year mortgages. The program would permit the Federal Housing Administration (FHA) to guarantee new mortgages for primary residences only if the lenders agree to reduce loan amounts to 90% of the current loan principle. To be eligible, homeowners must be able to afford the new mortgage, must have a mortgage debt-to-income ratio of greater than 31%, and must pay a small annual fee to the Treasury Department. The legislation authorizes the program, which would sunset in September of 2011, to insure up to $300 billion in mortgages. Homeowners enrolled in the program must share any future profits from appreciation in home value with the FHA. The bill authorizes the creation of an Affordable Housing Trust Fund that would pay for the program and would also support the construction, maintenance, and preservation of affordable rental housing for very low- and low-income individuals. A separate provision of the American Housing Rescue and Foreclosure Prevention Act authorizes states to issue an additional $11 billion in tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers, and finance the construction of low-income rental housing.
Additionally, the bill establishes the Federal Housing Finance Agency (FHFA) as an independent regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. These government-sponsored entities (GSEs) were created by the government to finance mortgages and increase home ownership. Beyond supervision of the operation of the GSEs, the new regulatory authority could establish minimum and risk-based capital requirements to ensure that the GSEs remain sufficiently leveraged against declining market conditions. The bill also clarifies the GSEs’ affordable housing goals and raises the limit on GSE loans to 115% of the local area median home price, with the permanent loan limit raised from $417,000 to $625,000. The interest on GSE loans would be used to finance the Affordable Housing Trust Fund.
The legislation temporarily permits the Treasury Department to extend to Fannie Mae and Freddie Mac an unlimited line of credit and to purchase stock in the companies to maintain their solvency if doing so would stabilize markets and prevent disruptions in mortgage availability. If this authority was assumed by the Treasury Department, the FHFA would gain increased regulatory capacity, including the power to approve executive compensation at all GSEs. The Act includes protections for taxpayers, putting them first in line to be paid back if the Treasury uses this increased authority.
Further, the bill grants $4 billion in Community Development Block Grant (CDBG) funds to states and cities to purchase and redevelop abandoned and foreclosed homes. The legislation requires the rehabilitated homes to be sold or rented to moderate-, low-, and very low-income individuals and families.
The American Housing Rescue and Foreclosure Prevention Act also establishes minimum standards for a nationwide mortgage licensing and registration system for brokers; increases the loan limit on reverse mortgages for seniors to $625,000; provides $180 million for housing counseling; and enhances mortgage disclosure requirements.
The bill contains several tax provisions. These include a temporary $7,500 tax credit for first-time homebuyers that must be paid back over 15 years; a temporary property tax deduction of $500 for individuals who do not itemize their tax returns; and a temporary increase in a low-income housing tax credit.
Finally, the Act increases the federal debt limit by $800 billion to $10.6 trillion.
Middle Class Supports. As many as 2.5 million families could lose their homes to foreclosure in 2008. At the same time, growing doubts about the solvency of Fannie Mae and Freddie Mac threaten to further destabilize the entire U.S. economy. Congress is not acting a moment too soon..
The refinancing program created by the American Housing Rescue and Foreclosure Prevention Act will have concrete results for middle-class homeowners facing the frightening prospect of foreclosure. Although participation in the program is voluntary for lenders, many are expected to participate and the measure is projected to help approximately 400,000 homeowners. Because the bill forces lenders to write down the principal by at least 10%, the program offers a less generous bailout to mortgage lenders than it otherwise might. Since irresponsible lending is a major cause of the current financial and home equity crisis, the effort to restrict the tax-payer funded bonanza for these lenders is beneficial.
The $4 billion of CDBG funds authorized by the legislation addresses two important problems plaguing aspiring middle-class Americans: the community breakdown that can result from vacant foreclosed homes in neighborhoods across the country and the lack of affordable housing in many communities. Middle-class Americans who are current on their mortgages and face no personal risk of foreclosure are nevertheless harmed when a foreclosed home down the street brings down property values, erodes the local tax base, and threatens to become a magnet for crime. The Center for Responsible Lending has shown that approximately 40.6 million homes will experience devaluation because of nearby subprime foreclosures, that homeowners living near foreclosed properties will lose approximately $5,000 on the value of their homes, and that approximately $200 billion dollars in house values and tax base will be lost from nearby foreclosures. By funneling federal money to local agencies to serve lower- and extremely low-income individuals, the CDBG funds will help neighborhoods recover from the harm done to their communities by foreclosures while helping to ensure that neighborhoods can accommodate aspiring middle-class Americans.
While the Congressional Budget Office believes that there is a 50% or better chance that Treasury will not have to use its new authority to purchase stock in the GSEs, the enactment of this authority reassures markets that the federal government is willing to serve as a backstop if Fannie Mae and Freddie Mac continue to falter. Because these secondary mortgage lenders hold or guarantee approximately half of all mortgages, their failure would have devastating consequences for middle-class families and the American economy as a whole. The promise of a bailout is regrettably necessary to prevent further market destabilization.
Increased oversight of the GSEs will be crucial to ensuring that the government-backed entities minimize taxpayer risk, while making mortgages affordable to middle-class Americans. Standards for a mortgage licensing and registration system and enhanced mortgage disclosure requirements are forward-looking measures that will help prevent the predatory lending and other improper lending practices that contributed to the foreclosure crisis.
“We’re going through a major financial crisis…let’s be clear: Fannie and Freddie can’t be allowed to fail. With the collapse of subprime lending, they’re now more central than ever to the housing market, and the economy as a whole.”
– Paul Krugman, Professor of Economics at Princeton and New York Times columnist, 7/14/2008
“While housing foreclosures have affected all state differently, those most negatively affected have responded by using a variety of policy tools to help homeowners in distress. Ultimately, no state will be immune from the cascading effects of this challenge, and its national implications for citizens, communities, and state and local governments justify immediate federal action. To that end, governors continue to support a voluntary mortgage-refinancing program backed by Federal Housing Administration insurance that will prevent further foreclosures. Second, while governors acknowledge that any federal action should avoid unintended consequences that could make current conditions worse in the long-term, a one-time federal outlay to support the acquisition and rehabilitation of foreclosed properties is vital to stabilize home values and protect neighborhoods.”
– Governors Jon Corzine (D-NJ) and M. Michael Rounds (R-SD) on behalf of the National Governors Association, 7/22/2008
While the American Housing Rescue and Foreclosure Prevention Act is an enormous piece of legislation, it omits one of the most effective measures to aid homeowners who are struggling with increased mortgage payments and at risk of losing their homes. Enabling bankruptcy courts to modify the terms of mortgages made on primary residences would prevent approximately 600,000 foreclosures, while ensuring that irresponsible lenders are not bailed out.
Increasing the federal debt limit to an astounding $10.6 trillion is perhaps necessary during an economic slump when countercyclical spending benefits current and aspiring middle-class Americans struggling with rising unemployment rates and the high price of gas. But the federal government should reconsider policies like tax cuts for the wealthy and an extremely costly and unpopular War in Iraq that have contributed to the enormous debt.