Housing bill offers limited foreclosure relief

The debate over whether to rein in Fannie and Freddie has been under way for years, but the recent turmoil stepped up the pressure on Congress to act swiftly. Now, after years of languishing, the reform measures in the current housing bill have in some ways overshadowed the original intent of the bill, which was to help homeowners facing foreclosure.

The new oversight of Fannie Mae and Freddie could help maintain a ready supply of affordable mortgage financing for future home buyers.

But the reforms won’t help those with existing loans who face default and foreclosure — or their neighbors who are seeing their home’s value decline.

“It’s not going to speed up or lessen the impact of the correction of the housing market,” said Wachovia economist Mark Vitner. “It’s too late for that. There's nothing that can be done.”

Unless foreclosures can be slowed, home prices will likley fall further, according to Federal Reserve Chairman Ben Bernanke.

“The declines in home prices have contributed to the rising tide of foreclosures,” he told a congressional panel last week. “By adding to the stock of vacant homes for sale, these foreclosures have in turn intensified the downward pressure on home prices in some areas.”

To help offset that pressure, the bill provides $4 billion in community development grants to help state and local housing agencies in hard hit areas buy and refurbish foreclosed homes, renting them out or reselling them.

That provision had become something of a showdown: Until Wednesday, President Bush had threatened to veto the bill if it included the community grants. Though the veto threat was withdrawn, Treasury Secretary Paulson repeated the complaint Wednesday that the grants were “wasteful.”

Opponents say using tax dollars to buy foreclosed homes amounts to a bailout for lenders; proponents argue that the funds would create new jobs and help stem the slide in home price where foreclosure rates are highest.

“The real losers in this awful crisis are the residents who live next to the foreclosed property who have continued to pay their mortgages on time yet see their property values rapidly decreasing,” said Ali Solis, vice president of public policy for Enterprise Community Partners, a nonprofit group that helps finance affordable housing.

A weakening economy, along with rising prices for food, energy and other household expenses, has expanded the pool of homeowners at risk of default. Some who might otherwise be able to keep up with their payments are falling behind as job loss or major health expense depletes their savings or retirement funds.

“The crisis is not getting better, the crisis is getting more severe,” said Susan Keating, the president of the National Foundation for Credit Counseling, which works with local agencies helping cash-strapped families. “And the tentacles of the problems are much more far-reaching than any of us would have considered 18 months ago.”

While the initial rounds of mortgage defaults and foreclosures were concentrated on the lower end of the economic ladder, the problem is now hitting families with higher incomes. Gardner says he’s seeing a big increase in bankruptcy filings from wealthier clients.

“From predominantly hourly employees all the way up to doctors, lawyers, insurance agents, people that were involved in the banking mortgage and real estate business,” he said. “It’s just been a massive upward movement on the income scale.”

For some homeowners, no amount of government help will head off a foreclosure. That includes many in states with the highest concentrations of mortgage defaults, such as California, Florida, Arizona and Nevada. In those states up to 40 percent of buyers in recent years were buying the homes as investments, according to Vitner.

“These investors never thought they’d have to make any mortgage payments. They thought they’d flip it,” he said. “These investors have no money. They have nothing. They used credit cards to make the down payment."

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