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“The services needed to maintain properties that are in foreclosure can be costly to cities,” says CEPR’s Baker. “In principle, the bills should be paid by the homeowner or the bank that forecloses. But if a homeowner has left the home in anticipation of a foreclosure and the bank does not actually carry through to take possession, then it can fall on the city to care for the property.”
| | | |  | |  | | | | | The American Housing Rescue and Foreclosure Prevention Act of 2008 is one of the federal government’s attempts to stem the mortgage crisis. Some provisions affect those not directly involved in a mortgage crisis. They are:
• Help for first-time home buyers. Those buying a first home between April 9, 2008, and July 1, 2009 receive a refundable tax credit, similar to an interest-free loan, of up to $7,500. It must be paid back over 15 years. There are income limits, however, and the credit starts to phase out for those taxpayers with adjusted gross income over $75,000 or $150,000 for those married couples filing a joint return.
• Help for seniors who want to tap into equity in their home through Federal Housing Administration (FHA) reverse mortgage loans. With these mortgages, seniors can borrow against the equity in their home. They don’t have to pay it back until they move out of the home. Lenders recover their principal, plus interest, when the home is sold. The Act increases the loan limit for the program, reduces and caps lender fees for such loans, and strengthens consumer protections limiting the sale of other financial products in conjunction with FHA reverse mortgage loans.
• Help for veterans. The Act increases the Veterans Administration home loan limit for high-cost housing areas. It lengthens from three months to nine months the time a lender must wait before starting foreclosure after a soldier returns from service. It provides returning soldiers with one-year relief from increases in mortgage interest rates. It requires the Department of Defense to establish a counseling program for veterans and active service members facing financial difficulties and provides a moving benefit to servicemen and women who are forced to move out because their rental housing was foreclosed on.
• Help for homeowners who take a standard deduction rather than itemize. They have the opportunity to claim an additional standard deduction for real property taxes on their home of up to $500 ($1,000 if married filing jointly) for the 2008 tax year.
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Baker says the loss of property tax revenues has been a big problem for many schools and cities. “Even when the taxes are being paid, many governments are now collecting less money because property values have declined. During the boom years, many governments not only anticipated that that the bubble-inflated prices were permanent—they made plans based on the assumption that property values would continue to rise. This has left many governments with large deficits.”
The mortgage crisis affects more than homeowners. It also affects those living in apartments and those seeking loans. According to Baker, in some of the former hot markets—such as Las Vegas, Miami and San Diego—as many as 30 to 40 percent of the foreclosed properties were investment properties. Renters in those properties then may have experienced losses of property and deposit money. The tightened credit market also may make it difficult for people to find loans or get a mortgage.
The crisis affects the budget deficit and ultimately the U.S. taxpayers. The Congressional Budget Office
and the Joint Committee on Taxation estimate that the new housing law’s effect on direct spending and revenues will be to increase budget deficits (or reduce future surpluses) by about $24.9 billion over the 2008 to2018 period. That does not include an estimate of the effects on discretionary spending.
Baker says it's not clear at this point how much the bailout bill will cost. “Most of the cost will probably be the result of honoring Fannie Mae (Federal National Mortgage Association) and Freddie Mac's (Federal Home Loan Mortgage Corporation) debts.” The two government-sponsored enterprises are shareholder-owned corporations whose mortgage loans and loan guarantees are backed by the government. “That could be in the neighborhood of $100 billion—that is a one-time cost that is equal to about 3 percent of the federal budget or roughly $1,000 per family.”
Community Efforts
Genessee County, Mich., is one area making creative efforts to help. County Treasurer Dan Kildee says that the county, in cooperation with private and non-profit partners, developed the Genessee County Land Bank in 2002. Using proceeds from tax foreclosures and sales and rental programs; grants, loans, and bonds; and taking advantage of a 1999 change in tax law, it tries to stabilize neighborhoods and revitalize the county. It manages land obtained through foreclosure, gift or purchase so it can be returned to the tax roll, when appropriate, to a higher and better condition than when received.
“The problem has been that the conditions of mortgage-foreclosed properties reduce the value of surrounding properties,” says Kildee. These properties might sit abandoned for years—stealing the equity and quality of life from neighboring property owners—or be sold to speculators who did not have the community’s interests in mind.
Kildee says the Land Band has taken title to 7,400 properties, including 2,000 houses, in six years. And finding that removing certain abandoned properties increases surrounding values, it also demolished 1,000 buildings.
Lastly, it makes an effort to sell properties to responsible owners. “We don’t advocate selling properties to just anybody,” said Kildee. “We’ve changed the model. Many communities just auction off the properties to the highest bidder.”
Other communities are finding the need to take action. Virginia’s Fairfax County offers assistance to those at risk of losing their houses, assists first-time buyers purchase already vacant houses, and, in some cases, it or its nonprofit partners purchase houses to help stabilize distressed neighborhoods. Boston’s foreclosures prompted a city ordinance to keep properties from slipping into disrepair. Those whose property is in the process of foreclosure or going to be foreclosed and vacant must register the property with the city to ensure the properties are being maintained and secured.
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Text by Maureen Blaney Flietner
© 2008 BobVila.com
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