The federal housing bill Congress passed Saturday, which President George Bush said he will sign, offers something for everyone, though its critics warn it does not solve any of the underlying problems that led to the economic downturn.
The legislation will allow homeowners who cannot afford their mortgage payments to refinance into more affordable government-backed loans rather than losing their homes to foreclosure.
Among the Foreclosure Prevention Act of 2008's provisions is an expansion of the low-income housing credit and a credit of up to $7,500 for first-time home buyers for homes purchased between April 9, 2008, and July 1, 2009.
First-time home buyers are defined as buyers who have not owned a home during the past three years. Home buyers can claim the full $7,500 credit if their adjusted gross income is less than $75,000. For married couples who file a joint return, the income limit is $150,000.
Gerri Murphy, broker and owner of Coldwell Banker Gerri Murphy Realty Inc. of Covington, said she hopes the new legislation will boost the area's sagging real estate market.
"Anything that can be done right now to help housing, I think will help the other sections of the economy," Murphy said. "I don't know that it's going to have an impact right away. There are still a lot of foreclosures out there and people are losing their homes. Only time, will tell whether this bill will help."
All home purchases including single-family, townhomes and condominiums, which are used as a principal residence, qualify for the tax credit which is taken on either the buyer's 2008 or 2009 tax return, depending on the time of purchase. The tax credit is refundable for home buyers who owe the federal government less money than the amount of the tax credit they are entitled to.
Members of the housing industry are hopeful that the tax credit will encourage first-time buyers and facilitate more buying up the ladder when homeowners move from small to larger houses.
"Now we've just got to sell some of these houses we've got sitting on the ground," said Andrea Hammond, executive officer of the Newton County Homebuilders Association.
According to the National Homebuilders Association, the tax credit will essentially serve as an interest-free loan to be repaid over 15 years. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. If the homeowner sells the home, the remaining credit would be due from the profit of the sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
The bill also aims to prevent an estimated 400,000 homeowners from going into foreclosure by allowing them to get more affordable mortgages backed by the Federal Housing Administration.
Under the bill, the FHA can insure up to $300 billion in mortgages, available to homeowners who show they can afford the new loans. Banks would have to agree to take a large loss on the existing loans in exchange for avoiding a foreclosure, which can be costly for all involved.
Down payments of 3.5 percent or more will now be required for any FHA loan, an increase from the 2.5 percent previously required, according to Hammond. The down payment increase will go into effect Oct. 1.
Beginning Oct. 1, the bill terminates a seller-assisted down payment program previously offered by FHA. Hammond predicted that the elimination of the assistance will have a negative impact on homebuilders as some buyers will no longer be able to put together enough money for a down payment on a new home.
"I'm sure they weren't happy with all of it, but there's a lot of interested parties and you have to give concessions," Hammond said of the compromise that resulted in the termination of the seller-assisted down payment program. "I'm sure this was a give and take. [The homebuilders] didn't get everything they wanted. Nobody did."
The bill also bans the FHA practice of charging differential pricing. The FHA strongly objected to the provision on the grounds that it will force the FHA to either increase prices on its customers or eliminate its refinancing program for subprime borrowers.
The bill passed the House of Representatives Wednesday by a margin of 272-152 and passed the Senate Saturday by 72-13. Newton County's two representatives were split in their votes. Rep. Jim Marshall (D-GA) voted in favor of the bill while Rep. John Linder (R-GA) voted against it. Both of the state's senators, Johnny Isakson and Saxby Chambliss, voted in favor of it.
To free up safer and more affordable mortgage credit, the bill permanently would increase to $625,000 the size of home loans that Fannie Mae and Freddie Mac can buy and the FHA can insure. They also could buy and back mortgages 15 percent higher than the median home price in certain areas.
It offers a temporary financial lifeline to troubled mortgage companies Fannie Mae and Freddie Mac - pillars of the home loan market whose losses have sparked investor fears - and tightens controls over the two government-sponsored businesses.
Under the bill, the U.S. Treasury Department gains unlimited power, until the end of 2009, to lend money to Fannie Mae and Freddie Mac or buy their stock should they need it. The Federal Reserve takes on a new "consultative" role overseeing the companies.
Conservative Republicans were vehemently opposed to the bill, particularly the help for Fannie Mae and Freddie Mac. Critics charge the companies enjoy lavish profits in good times and wield their outsized political clout to resist regulation while depending on the government to bail them out should they falter.
The Associated Press contributed to this report