President Bush signed a housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners nationwide who are in fear of foreclosure in the next year or so.
In Utah, several economists and real-estate experts said the measure could help stabilize the local housing market by sending a message to creditors that the government is willing to intervene. The measure is designed to help stabilize markets, in part by making credit more easily available amid rising defaults and falling home values.
"If it gives some confidence to the overall market and diminishes the panic, that will be great for everyone, including all Utah home owners, not just those in foreclosure," said James Wood, director of the University of Utah's Bureau of Business and Economic Research.
Early in the morning and out of public view, the president added his signature to a measure he once threatened to veto. The White House said he was accompanied in the Oval Office by Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and other administration officials.
The legislation is regarded as the most significant housing bill in decades. It won approval from lawmakers who were eager, in an election year, to come up with an answer to the growing housing crisis.
The measure includes $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners; $3.9 billion for communities to fix up foreclosed properties causing blight in neighborhoods; and $15 billion in tax cuts, including an expanded low-income housing tax credit and a credit of up to $7,500, to be repaid, for some first-time home buyers.
The number of homeowners who could lose their homes to foreclosure by the end of 2009 is estimated by some to be around 2.8 million. Under the legislation, 400,000 having trouble with payments could avoid it by trading their loans for new, more affordable mortgages through the Federal Housing Administration.
Their banks would have to agree to allow the swap and to take a large loss in exchange for avoiding the lengthy and costly foreclosure process. To qualify, homeowners would have to be paying more than 31 percent of their incomes toward their mortgages and show they could afford to make the payments on a new, smaller loan.
Wood predicted a potential record year for foreclosures in Utah in 2009.
"Right now, we're at about 4,000 homes in foreclosure," he said. "Over the next 12 to 18 months, that could go as high as 13,000."
The bill permanently increases to $625,500 the size of home loans in high-cost areas that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy and that the FHA can insure. It would otherwise have reverted to $417,000 for Fannie and Freddie and $362,790 for the FHA by the end of the year.
Dan Christensen, president of Coldwell Banker Residential Brokerage in Utah, said the loan-limit increases might be good news for residents in Salt Lake, Summit and Tooele counties, where the loan maximum is the national top limit. However, the loan limit in Utah County is lower, despite similar single-family housing prices.
In previous years, the loan limits tied the four Wasatch Front counties of Weber, Davis, Salt Lake and Utah together. But the federal government this year changed its criteria and chose to separate Utah County from the Salt Lake metro statistical area.
The bill signed Wednesday also includes the creation of what amounts to a national housing trust fund. The funding would be used by cities for the production, preservation, rehabilitation or operation of rental housing for low-income residents. In Utah, the Salt Lake City and Ogden urban areas would likely be the chief beneficiaries of the funding, said Gordon Walker, director of the Utah Division of Housing and Community Development.
The measure requires Fannie Mae and Freddie Mac to make annual contributions to the trust fund, which will be administered by the U.S. Department of Housing and Urban Development. After discussions with cities that are set to begin today, the department will make grants to states, which in turn will allocate funds to qualified organizations and agencies to build and operate rental housing that is affordable to low-wage workers and to the lowest-income elderly and the disabled, Walker said.
Actual dispersal of trust-fund dollars is expected by late October.
The White House sought to focus attention on parts of the legislation aimed at calming markets. Those include the offer of a temporary but unlimited government line of credit for troubled Fannie Mae and Freddie Mac. The Treasury Department gains power, until the end of 2009, to lend them emergency money or buy their stock.
This is considered crucial because of investor fears about the health of the companies, which buy or guarantee about half of the nation's mortgage loans.An overhaul of the Depression-era FHA also was requested by Bush. So, too, was the provision to keep homeowners from making overly risky mortgage choices by requiring lenders to show how high a borrower's payment could get under the terms of his mortgage. It provides $180 million in pre-foreclosure counseling.