What You Should Know About the Foreclosure Prevention Act

Posted on April 18th, 2008 by saman

On April 10th the Senate passed the Foreclosure Prevention Act. This is a package of tax breaks and other solutions that are supposed to help homeowners and business owners get through the present mortgage crisis.

Even though the act passed with and 84-12 majority, consumer advocates and others, even supporters of the bill, acknowledge that it favors businesses and does very little to help homeowners that may lose their homes. Presidential candidates Hillary Clinton, Barack Obama and John McCain did not participate in the vote.

The plan gives four billion dollars in grants to communities that will purchase and fix up homes that have been abandoned. It also gives a seven thousand dollar tax credit to people who buy foreclosed homes and tax breaks for companies that build homes. These tax breaks will add up to twenty five billion dollars in the next years. The plan also provides a tax deduction of one thousand dollars to families that pay their property taxes. It also provides one hundred and fifty million dollars for foreclosure counseling. The question that comes up is if the seven thousand dollar tax credit will hurt or help buyers that are not buying a foreclosed home. There is also the question of whether or not the grant program will be supervised. There is no guarantee that the money will not be misused.

The Foreclosure Prevention act does not provide for those whose homes are worth less than what is owed to the bank because of decreasing home prices. It also does not include a provision where a bankruptcy judge is allowed to change the terms of a mortgage loan.

The Foreclosure Prevention Act will most likely be redrawn by the House of Representatives. There are several in the House that do not approve on the Senate bill. Their plan would not help buyers of foreclosed properties but instead would help those buying their first home. Senator Chris Dodd and others have stated that the act does not live up to its name and that more work needs to be done. A program that President Bush is making larger to help distressed homeowners has helped less than one percent of these homeowners.

President Bush and Democrats in congress have clashed over how much of a government response is needed to help the two million U.S. citizens who are being faced with foreclosure this year. Democrats in the Senate have not won approval on such ideas as giving individuals who are at risk an opportunity to try and acquire better loan terms from banks in bankruptcy courts. Also, a proposal that would have the government back up loans that have been refinanced for those faced with foreclosure has not won the support of the GOP.

The White House opposes such plans but has not issued an obvious veto threat. The White House says that some aspects of the legislation would increase the problem by causing home values to go lower. They also say that the measure uses the money of the taxpayers to relieve lenders who have many foreclosed homes on their books.