In another display of the Administration’s failure to grasp the needs of struggling American homeowners, President Bush has vowed to veto the housing relief package put forth Congress. This legislation is on track to pass through both houses by end of this week.
The package has two primary components:
1. The Neighborhood Stabilization Act, a measure designed to provide funds for the purchase and rehabilitation of foreclosed properties so they can be restored and used as affordable housing
2. The American Housing Rescue and Foreclosure Prevention Act, legislation to expand access to federally insured mortgages to help troubled homeowners refinance their loans, primarily through an expansion of the Federal Housing Administration (FHA) insurance program.
Below, The Wonk Room debunks Bush’s arguments for vetoing the bill:
The Neighborhood Stabilization Act
BUSH: The principal beneficiaries of this type of plan would be private lenders – who are now the owners of the vacant or foreclosed properties – instead of struggling homeowners who are working hard to stay in their homes.
TRUTH: The Administration’s statement ignores common sense—a bank holding a foreclosed home is looking to make a profit, regardless of with whom they are negotiating. This legislation grants non-profit groups and state governments, who have the end goal of revitalizing neighborhoods, money to buy homes from banks in bulk, cutting out speculators who are only looking to flip homes, which is often detrimental to local house prices.
BUSH: [The housing bill] would constitute a bailout by authorizing loans and grants to States for the redevelopment of abandoned and foreclosed homes.
TRUTH: In communities hardest hit by foreclosure, bank-owned homes frequently sell for less than $10,000. Banks are not making money off these sales. Providing a fund so that neighborhoods can be repurchased and repopulated at such a low price hardly represents a bailout to the banks who currently own these properties.
BUSH: The Administration is also concerned that [the housing bill] would create an additional incentive for more lenders to foreclose rather than attempt a workout with distressed homeowners. An increase in foreclosures could well prolong the time it would take for the housing market to recover.
TRUTH: This claim is based on two false assumptions. First, that banks are making changes to loan terms to create sustainable mortgages. Unfortunately, banks are already foreclosing on twice as many mortgages as they are choosing to modify—most “workouts” are costly repayment plans that do little to keep homeowners in their homes over the long term. The second false assumption is that banks are making a profit on reselling foreclosed homes. Currently, even lenders who made few subprime loans are recovering only about 75 cents on every dollar loaned when selling foreclosed properties. Subprime lenders are recovering closer to 50 cents on the dollar. This is not the ‘soft landing’ that would spur a rational lender to forego loss mitigation activities with a homeowner.
The American Housing Rescue and Foreclosure Prevention Act
BUSH: Unlike the Administration’s recent administrative efforts to broaden FHA eligibility, [The American Housing Rescue and Foreclosure Prevention Act] is overly burdensome and prescriptive.
TRUTH: The Administration’s program to alleviate the housing crisis, FHASecure, actually assists far fewer homeowners than the projected 500,000 that the Frank plan would help. Run through the Department of Housing and Urban Development, FHASecure has helped about 2,000 delinquent borrowers in the past eight months, a far cry from what the Congress is offering.