The U.S. Senate has reached an agreement on a plan to help the slumping housing market.
"We dealt with a number of issues here and came to a common ground, between the majority and minority here and trying to step forward and do what we can do to help resolve this economic crisis that has it's root to the foreclosure crisis, the housing crisis," said Sen. Christopher Dodd D-Conn. Dodd serves as Senate Banking Committee chairman.
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The bill would help people refinance adjustable-rate-mortgages. It would also give billions of dollars in the form of grants to local communities to buy and refurbish foreclosed homes.
"There's a lot more that needs to be done," Dodd said. "But it's a step in the right direction."
It is hoped that these measures would boost the demand for housing.
White House spokesman Tony Fratto said the administration likes some provisions, such as issuing mortgage bonds and modernizing the Federal Housing Administration to boost access to FHA-insured loans.
But he added that the administration has "serious concerns" about other provisions such as the homebuyers' tax credit and aid to local governments to purchase foreclosed homes. The fear is that these provisions would drive down the value of homes
"Some of these provisions that are purportedly to help homeowners actually would not help them and in some cases could hurt them," Fratto said. For example, the tax credit for buyers could force down prices for many other sellers.
"Basically, you're giving money to builders that overbuilt and banks that issued bad loans," said Dean Baker, co-director of the Center for Economic and Policy Research. "It's giving money to the villains in this story."
While supporters said the measure would boost demand for housing and help people refinance adjustable-rate mortgages, many economists cautioned that the measure's benefits at best would be modest. It would help banks and homebuilders while doing hardly anything for people facing the threat of foreclosure.
"They're good steps, but they're small steps and certainly not big enough steps to solve the problem," said Mark Zandi, chief economist for Moody's Economy.com. "I don't think it's going to be enough to solve the housing problem, at least not in 2008."
The bill also contains a provision dropped from February's stimulus package that allows homebuilders and other money-losing businesses to reclaim previously paid taxes. It also contains new disclosure requirements aimed at preventing unsophisticated borrowers from being duped by mortgage brokers.
The measure includes additional funding to provide financial counseling to people threatened with foreclosure as well as helping them in their negotiations with their lenders.
Economists also questioned how effective it would be to have local governments buy and refurbish foreclosed homes. Advocates of the idea say it would stabilize neighborhoods and protect home values, but the White House said it would benefit lenders most.
"The funding to purchase homes does nothing to help homeowners struggling to make their mortgage payments," Fratto said
Altogether, the tax provisions in the measure would cost $10.8 billion over the next decade, though the short-term costs are considerably higher.
Source: The Associated Press