Showing posts with label HOPE for Homeowners. Show all posts
Showing posts with label HOPE for Homeowners. Show all posts

Wednesday, July 30, 2008

Socially Responsible Investors and the Housing Bill (Amy Rosenthal, Peter Murray, Angela Wang)

We anticipate that the Housing Bill will impact socially responsible investors via it's impact on low and moderate income communities. Mortgage borrowers will win; lenders will suffer some losses. Several sections in the law (for example, rules concerning disclosure) will now force lenders to fully explain to borrowers exactly how mortgage loan payments work. In addition, new borrower counseling programs are created to provide advice to borrowers.

The bill’s first impact on social investors will come in the form of block grants given to the states. These block grants are meant to spur investments in troubled neighborhoods. Many times, foreclosed homes drive down property values in the neighborhood, leading to more foreclosures. The grants are targeted to areas with large amounts of foreclosed properties, and will help to prevent domino effect cited above. Low to moderate income communities, which have been hit hardest by the increase in foreclosures, should specifically benefit.

Several tax provisions also included in the bill. One section extends the net operating loss carryback period for businesses to four years from the current two year period. This means that losses recognized this year can be negated by taxes paid in prior profitable years, which would then allow the government to refund taxes paid in the past. The title also provides billions of dollars for new cheap mortgages as well as money to make currently foreclosed homes cheaper and therefore more likely to be taken off the market.

The bill also seeks to help certain targeted populations. It provides relief to people affected by the 2005 hurricanes as well as those affected by recent violent weather in the mid-west. Title IX of this bill is designed to aid veterans. Large amounts of funds will be allotted to maintain disabled or injured soldiers’ homes.

From a socially responsible investing standpoint, Title X is one of the most interesting parts of this bill since it not only helps homeowners keep their homes but it also encourages homeowners to be more eco-friendly. This title introduces the Clean Energy Tax Stimulus Act of 2008. The Act extends tax credits for using renewable resources in your home or business. The deadline for tax credits for investing in solar energy, fuel cells, and micro turbines is also extended by this act. Although this particular title does not directly address foreclosures, it will move homeowners to buy energy efficient appliances and heating systems. These tax breaks will also certainly bring on the development of a new wave of eco-friendly mortgage products. As more people begin to adopt these green technologies, the appliances and heating and cooling systems will become cheaper. Homeowners with these mortgages will also be less likely to default since the energy saving appliances and heating and cooling systems will reduce the monthly electric bill, which in turn would make the already low mortgage even more affordable.

The final part of the bill targets Fannie Mae and Freddie Mac. First, the bill establishes new regulatory oversight for the GSEs, now regulated by the Office of Federal Housing Enterprise Oversight. The new authority will presumably enforce tougher and stronger regulations, and will establish new capital standards to ensure the financial security of the GSEs. Second, the bill creates a temporary FHA program, called HOPE for Homeowners, to help certain borrowers who are at risk of foreclosures refinance their mortgages. Lenders voluntarily agree to participate in this new program. The program will be funded by Fannie Mae and Freddie Mac. According to the Congressional Budge Office’s most recent analysis, the new legislation will cost Freddie and Fannie approximately $710 million in 2009. Thus, the bill leans heavily on Fannie Mae and Freddie Mac to pay for the subprime mortgage bailout; the government is putting a big responsibility on the two corporations to pull the economy through this financial turmoil.

Amy Rosenthal
Peter Murray
Angela Wang