Shopper
Los Angeles,#2Author of original report
Thu, December 13, 2012
Housing Disaster Area Foreclosure Prevention Act of 2009
The Act seeks to leverage state Housing Finance Agencies (HFA) to
provide targeted foreclosure prevention to the low to middle income
communities hardest hit by the foreclosure crisis. The Act builds off
language in the Housing and Economic Recovery Act of 2008 and other
existing authorizations to enable state HFAs to access the resources
they need to provide targeted housing programs for the hardest hit
areas. The Act centers on three funding suggestions: (1) mandating that
the Treasury Department purchase tax-exempt housing bonds; (2) allowing
state HFAs to use TARP funds to help underwrite the refinancing of
underwater mortgages; and (3) raise the bond ceiling for HFAs a further
$20 billion for the 10 states hardest hit by the foreclosure crisis. The
other suggestions play important supporting roles.
Title I - Expansion of State Foreclosure Mitigation Programs
Sec. 102 - Mandate that the Treasury Department purchase tax-exempt housing bonds
State HFAs currently cannot access the bond markets to fund their
programs. Sec. 3021 increased the ceiling for tax-exempt housing bonds
by $11 billion in order to refinance mortgages in danger of foreclosure,
but the failure in the bond market has prevented HFAs from issuing new
bonds. Treasury must step in for a determined length of time to provide a
market for the highly rated HFA bonds. Also, many senators and several
representatives, particularly Reps. G. Moore and Kind, have focused on
this issue. This proposal would seek to codify those efforts.
Sec. 103 - Allow state HFAs to use TARP funds to help underwrite the refinancing of underwater mortgages While
the underwriting standards in sec. 3021 are important to maintaining
the credit rating of tax-exempt housing bonds, state HFAs in states with
steep home value declines will need an additional source of funds to
refinance loans on a statewide basis. TARP would provide the funds
needed to write down principal and bring refinanced loans into line with
HFA loan standards. The cost will depend on how many refinances state
HFAs can do under sec. 3021. Looking forward, future bankruptcy reform
would decrease the amount of TARP funds needed per mortgage refinance,
as banks will have an incentive to voluntarily reduce outstanding
principle. Some provision may be needed to reclaim profits for the
government on a refinanced home sold for profit, such as a portion
proportional to profits on a future home sale.
Sec. 103 - Interest rate buy down for disaster areas served by HFA foreclosure prevention refinancing programs
To complement the work of HFAs in the hardest hit states, the bill
would direct Treasury to establish a special funding facility to buy
down interest rates of 1.0% below the market rate for any new or
refinanced mortgage in an area prioritized by an HFA as a disaster area.
This will spur housing demand and help arrest the fall in housing
prices beyond the capacity of the HFAs. For new and refinanced mortgages
in qualified areas, as defined by section 143 J of Internal Revenue
Code, within states that this proposal increases the state HFA bond
issuing authority, the Treasury Secretary shall establish a program to
provide mechanisms to ensure the availability of affordable,
below-market interest rates on mortgages made for the purchase. It would
be available for 18 months.
Sec. 104 - Instruct the HUD Secretary to work with HFAs to increase HFA access to mortgage insurance. State
HFA programs are further hampered by the unavailability of mortgage
insurance. TheHUD Secretary has tools, such as FHA insurance, that can
help increase access for HFA programs tomortgage insurance.
Sec. 105 State reporting requirement The Treasury and
state HFAs will be able to work better together if HFAs keep Treasury
informed of how they are using refinancing authority. The Act includes a
biannual reporting requirement until the refinancing bond authority has
been exhausted, states using the refinancing authority shall report (1)
how much remains of the refinancing bond authority, (2) how many homes
they have refinanced using the refinancing authority, and (3) to which
counties and municipalities states have devoted refinancing resources.
Title II - Housing Tax Incentives
Sec. 201 - Raise the bond ceiling a further $20 billion for the 10 states hardest hit by the foreclosure crisis While
the bond ceiling increase in H.R. 3221 will have a sizeable impact
nationwide, HFAs inthe states hardest hit need still further resources.
An additional increase of the bond ceiling by $20 billionwould enable
those state HFAs to arrest the free fall in housing prices in the
hardest hit regions. The stateshardest hit would be determined by the
Treasury Secretary, while the ceiling would be raised proportionalto the
number of foreclosures in the state in 2008 and number of notices of 30
days past due a state had inthe previous quarter. To build on the
efforts of Reps. Tauscher and Cardoza to define a housing
disasterarea, the state HFAs would be instructed to focus this
additional bond money on the areas hardest hit.
Sec. 202 - Expand eligibility of loan refinancing to include all types of loans, not just subprime loans While
the mortgage crisis initially centered on defaults of subprime
mortgages, it has now spread to allsegments of the housing market. In
order to comprehensively address the housing crisis, sec. 3021
shouldallow state FHAs to refinance all types of loans.
Sec. 203 - Extend Sec. 3021 authority one year Due to the
delay in issuing housing bonds to fund mortgage refinances, the
authority should be extended to December 31, 2011. The Treasury
Secretary should review by December 31, 2010, whether or not the
refinancing program should be extended beyond December 31, 2011.
Sec. 204 - Make sec. 3022 apply to all tax-exempt housing bonds, not just those issued after the enactment of H.R. 3221 -
Some state HFAs would like to refinance existing bonds, and thus free
upresources to increase housing assistance, but are having trouble
finding a market for them. The existingAMT relief does not apply to
bonds that refund, directly or indirectly, bonds issued prior to July
31, 2008.Expanding the AMT credit to all bonds would help state HFAs
refinance old bonds and free up resources.
Sec. 205 - Clarify that IRS Code section 143J applies to those areas hardest hit by foreclosure
Section 143J directs under what conditions an area can qualify for
expanded HFA program criteria. Currently the definition of an area of
chronic economic distress suggests that high foreclosure areas are
eligible, but does not make that explicit. Adding high foreclosure
area as a new qualified area ensures that the expanded HFA resources
this proposal provides go to the areas most in need.
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