Foreclosure Prevention Act Includes Bank Foreclosure Incentives
By: Gerri L. Elder
Democratic and Republican senators have reached an agreement on a housing bill called "The Foreclosure Prevention Act of 2008" that would provide billions of dollars in aid for the foreclosure crisis. However, it is questionable as to how much of the relief package would actually benefit distressed homeowners who are faced with bank foreclosure on their homes. In fact, some experts say that the bill actually provides encouragement for lenders to go forward with more foreclosures.
If passed, the bill would be the first significant foreclosure relief package passed by federal lawmakers. It is aimed to help victims of the housing market collapse and mortgage crisis, but would benefit home builders and businesses affected by the poor housing market the most, still leaving homeowners out in the cold.
The bill would allow home builders and other businesses to write off their losses in 2008 and 2009 against taxes already paid for the past four years. The Senate Finance Committee estimates that this provision of the bill would result in a loss of more than $6 billion in tax revenue, while others say that is a low estimate.
The bill does provide some help to families facing foreclosure, communities fearing a surge in abandoned properties, new-home buyers, returning war veterans and low-income taxpayers, but it is also criticized for still falling short. Housing experts say it lacks an important element that could be extremely beneficial for homeowners hoping to avoid bank foreclosure. The bill does not give permission for bankruptcy judges to modify the terms of mortgages on homes used as primary residences. The Los Angeles Times has reported that Republican lawmakers and the mortgage banking industry have strongly opposed such a measure to help homeowners facing bank foreclosures.
Critics of the bill argue that the bill favors mortgage bankers rather than homeowners and actually gives banks incentive to foreclose on more properties.
The Washington Post points out that the bill includes a tax credit of up to $7,000 over two years for people who buy and move into foreclosed homes within a year of enactment. This provision is geared towards keeping homes from sitting vacant, however it leaves little motivation for lenders to work with homeowners who can not make their mortgage payments. After all, why should they modify the terms of a mortgage loan for a distressed homeowner when new buyers would be happy to purchase the home after it is foreclosed on and receive the $7,000 tax credit?
If the bill is passed, the $7,000 tax credit would make foreclosed properties a more popular option for buyers than non-foreclosed homes. Therefore the banks would have an easy time reselling the homes after foreclosure and there would be no need to put up with homeowners who can't make their mortgage payments.
Under The Foreclosure Prevention Act of 2008, foreclosure would become a very attractive option and the first choice for lenders and they would not have any reason to offer options and payment plans to homeowners in danger of losing their homes. As written, the bill would actually worsen the nationwide foreclosure crisis, despite its warm and fuzzy formal name.