Foreclosure Prevention Act still has a way to go
By Brian A. Bernardoni

Many people are familiar with Otto von Bismarck’s famous quote: “Laws are like sausage. It’s best not to see them being made.” It sums up the messiness that the legislative process can have, especially when it comes to the hottest issue of the season: foreclosure.

There is no doubt that with housing starts at their weakest level since May of 1991 and home prices in some parts of the nation in decline, Congress, the President, the Federal Reserve and industry leaders have all felt compelled to act. The good news is that both the U.S. Senate (H.R. 3221) and U.S. House (H.R. 5720) have passed foreclosure bills. The bad news is that they have not yet come to a consensus. Significant action came from the Senate recently, when the body overwhelmingly supported the bill despite stated opposition from the White House, which promised to deliver a veto unless provisions related to bankruptcy were stricken.

The Senate bill includes both FHA and tax measures as well as other reforms. Also included is an annual tax credit for two years of $3,500 for homeowners who purchase homes at or near foreclosure as well as increased FHA loan limits and streamlining of condominium purchases. Increased down payments authorization from 3 to 3.5 percent is also included. Details on both the House and Senate proposals are listed below.

The White House has expressed significant opposition to several aspects of the plan, including the appropriation of $4 billion for assistance to state and local Governments for the redevelopment of abandoned and foreclosed homes was deemed too costly and a bailout for lenders and speculators over consumers and the increase in Neighborhood Reinvestment Corporation funds.

The White House seems to have been successful in removing language that would have increased the power of bankruptcy judges to modify terms of mortgages in bankruptcy proceedings. This language, which was under major scrutiny, was a core of early Democratic support and may eventually re-emerge, but seems to be dead for now.

Early winners in this legislation seem to be home builders, banks and businesses that, after suffering from a less than favorable market, will now have the opportunity to get refunds on taxes they paid over the past four years through an extension of the net operating loss carryback.

This has created a glaring problem, and a focus for many opponents of the bill who claim there is a lack of any direct assistance to those who are being foreclosed, but supporters of the bill have keyed into the increase in pre-foreclosure counseling funds. Critics claim that keeping the bankruptcy provisions in the bill would have saved some 600,000 families in their homes, and the provisions for the banks and home builders amount to a $6.1 billion tax break.

The National Association of Realtors is closely monitoring the bills and is working with both bodies on the details of the packages. As for the sausage,it depends who eats it. For foreclosed homeowners, at least for right now, while hoping for relief and reform they may find themselves with an end product with very little pork and lots of filler.

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