Abuse by the subprime mortgage lending industry and under-regulation by government officials during the last eight years has led to massive foreclosures on primary residences, undermined home values, and reduced home sales, which has, in turn, caused a domino effect across every sector of the American economy and resulted in the worst economic recession in decades. In 2008, foreclosure filings on properties increased by more than 80 percent to 2.3 million, and additional foreclosures are expected as more and more Americans find themselves unable to make their mortgage payments.
As Congress works to get the economy working again by creating jobs, providing tax relief, and making long-term investments, we have not forgotten the origin of the current recession: the crash of the housing market. In the coming weeks and months, we will build upon previously passed-legislation and propose new solutions to prevent unnecessary foreclosures, stabilize the financial markets, encourage new and responsible home purchases, expand affordable housing, and help communities recover from massive home foreclosures.
The American dream of homeownership. According to Standard & Poor’s Case-Shiller Home Price Index of 20 metropolitan areas, home prices dropped by more than 18 percent overall in November 2008 (the last month of available data) from the previous year, making it more difficult for struggling homeowners to refinance or sell their property at a profit. The silver lining, however, is that reduced prices are leading to increased home sales, which rose by 6.5 percent in December 2008 (the largest increase in years). In an effort to stabilize housing prices, while still encouraging aspiring homeowners, the American Recovery and Reinvestment Act of 2007 will extend and increase the homebuyer tax credit. The plan will also expand more targeted homeownership and foreclosure prevention programs, including: 1) the Homeowners Assistance Program in the Department of Defense, which provides financial assistance to military and civilian personnel who face the loss or severe devaluation of their homes due to base closures; 2) rural housing programs, which help stabilize the housing market in rural communities and help rural Americans avoid foreclosure or purchase a new home; and 3) the Community Services Block Grant, which helps community action agencies provide additional housing and mortgage counseling, as well as other services, to Americans who need it.
Affordable housing. The home loan crisis has only exacerbated the nation’s ongoing affordable housing crunch. Despite dropping interest rates, the heightened underwriting standards for obtaining a home loan have made it more difficult for many Americans to purchase a home, and job losses and the continued resetting of adjustable rate mortgages have made it more difficult for existing homeowners to make their mortgage payments. The result has been an increased demand and cost for rental housing, which has only made it more difficult for non-owners to rent. To ensure that Americans have a safe and stable place to live so that they can find a job and contribute to the local and national economy, the economic recovery plan will invest billions in affordable housing construction and opportunities for low-income Americans.
The Public Housing Capital Fund will provide formula and completive grants to help local public housing agencies address the backlog in capital needs, including improving energy efficiency in aging developments. It is estimated that this investment will yield significant economic benefits, including generating $2.12 in local economic activity for every one dollar spent and reducing energy costs for tenants. The investment will also help to create or preserve 140,000 much-needed jobs in the housing construction sector. The HOME Investments Partnerships Program block grants will enable state and local government, in partnership with community-based organizations, to acquire, construct, and rehabilitate affordable housing and provide rental assistance to poor families. The American Recovery and Reinvestment Act will also invest billions to: 1) stabilize and ensure the availability of Section 8 project-based housing; and 2) to prevent homelessness through the Homelessness Prevention Fund, which can help Americans keep a roof over their head by offering short or medium-term rental assistance, first and last month’s rent, or utility payments. The plan would also encourage private investments in affordable housing by accelerating the low income housing credit.