Housing Relief - first small step towards recovery...

By Mary Ellen Podmolik
Chicago Tribune reporter
July 31, 2008

First-time home buyers have a better shot at the American dream and strapped homeowners may be able to stave off financial ruin under a lengthy set of measures signed into law by President Bush on Wednesday.

But there are plenty of catches in the 694-page housing legislation.

The Government Accountability Office has said the mortgage-relief facets of the legislation will assist 400,000 struggling homeowners nationwide. It is uncertain how many Illinois residents would qualify for assistance, but, for the first six months of the year, Illinois accounted for only 4 percent of the nation's foreclosures, according to RealtyTrac Inc.

Programs to keep homeowners in their homes by restructuring their loans could shrink the glut of houses on the market by lessening the number of preforeclosure and foreclosure sales.

But Mark Zandi, chief economist of Moody's Economy .com, estimates there will be 3 million more mortgage loan defaults by the end of the year. "It's not a miracle cure," Zandi said. "It's one modest, positive step."

Under the mortgage assistance program, qualified homeowners can seek to have their existing mortgages canceled and replaced with a 30-year fixed rate, Federal Housing Administration-backed loan for as much as 90 percent of the home's value. However, it is up to lenders to decide whether they will participate in the program and which homeowners they will help. Mortgage companies would wind up having to write off a portion of the existing loans.

The program, which will be available Oct. 1 through September 2011, is designed to benefit borrowers who spent more than 31 percent of their monthly incomes on their mortgages as of March 1 on loans that were written before Jan. 2.

Logan Square resident Jacqueline Rodriguez has followed the bill's progress through the House and Senate, but the mortgage rescue provisions may not begin in time for her.

Personal circumstances forced Rodriguez to refinance a fixed, low-interest-rate loan into an adjustable-rate mortgage three years ago. She is now five months behind on her mortgage payments and has attended a series of foreclosure prevention workshops offered by Neighborhood Housing Services.

"I don't know if I can wait until Oct. 1," she said. "I don't want to lose my house and I don't want to sell it but I don't want to go into foreclosure either. I worked very hard to get where I am."

The bill, known as the Housing and Economic Recovery Act of 2008, earmarks additional funds for groups such as Neighborhood Housing Services to hire more counselors to assist struggling homeowners.

The legislation also aims to turn more renters into homeowners by providing a temporary $7,500 tax credit to qualifying first-time home buyers who purchase homes between April 9, 2008, and July 1, 2009. However, the tax credit must be repaid, either over 15 years or when the home is sold.

Carpentersville resident Sherri Campbell has been looking to buy her first home and would easily qualify for the tax credit. While she likes the theory of the tax credit, she's unsure whether she would seek it.

"It would be 100 percent 'I'd take it' if I didn't have to pay it back," she said. "I'm no dummy."

The bill increases the loan limit for FHA-insured mortgages to a maximum of $625,000. At the same time, the bill raises to 3.5 percent, from 3 percent, the amount of down payment a buyer must make to receive an FHA loan.

"Is it going to resolve everything? No, we were hemorrhaging. This a good bandage," said Paul Bertsche, vice president and general counsel at CA Development.

One downside of the legislation from the home builders' perspective is the decision to no longer allow home sellers to offer down payment "gifts" to buyers who seek FHA loans.

Consumers are demonstrating some interest in the measure. A Web site, www.federalhousingtaxcredit.com, that went live Wednesday morning received several thousand hits by noon, according to the National Association of Home Builders.

"Clearly, the people sitting on the sidelines are jumping back into the inquisitive mode and are at least thinking about buying a house," said Jerry Howard, chief executive of the National Association of Home Builders.

mepodomolik@tribune.com - Copyright © 2008, Chicago Tribune