Bill would help shore up foreclosure crisis

DE – August 11, 2008 – (RealEstateRama) — When a Delaware home is lost through foreclosure, it is not just one family’s private tragedy — it weakens our neighborhoods and our communities, too. With more than 4,000 Delaware properties in foreclosure, our state is now part of a national housing crisis that threatens the foundations of our economy.

Because those homes are the major assets of financial institutions like Fannie Mae and Freddie Mac, their values are the key to the health of our banking system. Those two lending giants together hold more than half of America’s existing home mortgages, and they buy more than three-quarters of new mortgages. That adds up to $5 trillion in mortgage loans on their books alone.

As foreclosures grow, and housing values continue to weaken, they undermine the strength of our financial system — they become cracks in our country’s economic foundations. To shore up our economy, to strengthen essential financial institutions and to keep families in their homes in Delaware and across the country, the Congress has passed a housing- reform bill. It will protect families and communities and start to restore confidence to the institutions that finance our nation’s housing.

Here’s how it will work: To get families back into the housing market, it will offer first time homebuyers a refundable, $7,500 tax credit that works like an interest-free loan. Taxpayers who do not itemize will be able to claim the property-tax deduction that has long been available to those who do itemize. And the plan will increase the low-income housing tax credit to help homebuilders make it easier for low-income families to get into homes.

To stop the downward spiral of home prices, and to help families stay in their homes, the plan modernizes the Federal Housing Administration. This reform raises the size of mortgages the FHA can insure, to reflect home value increases of recent years. To save families who are on the brink right now, it also establishes a program that would allow them to refinance into government-insured, fixed-rate mortgages that they can afford to repay. It will also help qualified homeowners over the next three years to renegotiate mortgages to a level they can afford. This will keep in their homes families that today are facing eviction.

To protect our neighborhoods, the housing-reform bill offers $4 billion in assistance to those communities hit hardest by foreclosures. They can use this money to turn the tide on neighborhood blight, by buying up foreclosed properties and helping families move back into them.

Those communities can raise another $11 billion on their own to expand those programs. At the same time, we boost the awareness of and funding for foreclosure counseling to help families avoid losing their homes in the first place.

To shore up the essential financial institutions that keep our economy moving, we strengthen oversight of Fannie Mae and Freddie Mac and extend them a helping hand. Our bill provides the U.S. Treasury with temporary authority to loan them money — but only if they need it. In exchange, it puts those institutions under a tough new regulator. I If the federal government is going to promise to back them up, it needs to have the power to be sure they are acting in the American people’s best interests.

When it is in effect, Delaware homeowners and communities will receive $58 million in direct funds, generating $125 million in additional economic activity.

Unfortunately, it appears that this crisis will not be over soon. Still, by helping homeowners, strengthening markets and reforming lending institutions, this legislation is an important first step toward the day it will be over.

Editor’s note: U.S. Sen. Joseph R. Biden, Jr., D-Del, is a member of the Judiciary and Foreign Relations committees. He resides in Wilmington.

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