Rules, Regulations, and Statutes in the Housing Industry Introduction The United States housing industry has seen an absolute decline in housing prices since the Great Depression. The tightening of credit on high-risk has resulted to a property price crash in the country. These changes have negatively influenced the U.S. housing market with the incredibly devastating impact on the whole U.S. economy. It should be taken into consideration that this unprecedented decline in the U.S.
housing industry may lead to unpredictable consequences, as it may also hurt financial institutions, who collectively own over $1 trillion worth of the U.S. subprime debt. Obviously, the U.S. government acknowledges the necessity to cope with the problem, and has to develop a range of initiatives in order to resolve the issue and to minimize negative impact on the U.S. economy in general and the U.S. housing industry in particular. The paper outlines the rules, regulations, and statutes in the housing industry and government actions to aid the economy in the current housing decline.
Rules, Regulations, and Statutes in the Housing Industry The U.S. housing industry is governed by a number of regulations, rules, waivers, laws, and other legal documents. For example, affordable housing operates under Title 42 – The public health and welfare Chapter 130 – National Affordable Housing Subchapter II – Investment in Affordable Housing, Title 24–Housing and Urban Development (Code of Federal Regulations), Community Renewal Tax Relief Act of 2000, EDI/BEDI Laws, Title II of the Cranston-Gonzalez National Affordable Housing Act (the HOME Investment Partnerships Act), Section 11 of the Housing Opportunity Program Extension Act of 1996, and is the subject to other state and federal laws, and regulations (Community Planning and Development).
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In addition, there are the Housing and Community Development Act of 1992, Pub. L. 102550, titled the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C.
4501 et seq.), which established Office of Federal Housing Enterprise Oversight within the Urban Development and Department of Housing in order to ensure that the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation operate in compliance with the appropriate regulations, statutes and laws. As it is claimed by the National Association of Home Builders (NAHB), there is a need for Federal Housing Administration reform in order to address the U.S. mortgage fallout. The subprime providers thrived because statute limitations kept the Federal Housing Administration from offering more flexible loan options. (Top policy agenda items for the housing industry in 2008) According to Felicia Oliver, in order to make Federal Housing Administration loans more appealing, the House of Representative have passed the Expanding American Homeownership Act of 2007. Some provisions of this bill allows the Federal Housing Administration to establish a mortgage insurance premium pricing structure that rewards higher-risk borrowers who establish a track record of timely payments and create 40-year mortgages to reduce borrowers’ monthly mortgage payments.
(Top policy agenda items for the housing industry in 2008) All these laws, regulations, and statutes are aimed to ensure that the housing industry operates appropriate, avoids excessive and unnecessary risks and bad loan practices. However these laws fail to cope with the subprime crisis and the government tries to find additional ways to solve the problem. The U.S. Housing Industry: Actions to Ease the U.S. housing crisis The housing decline is the most substantial risk to the U.S. economy. The U.S.
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government develops a range of actions aimed to ease the decline in the housing industry. The actions undertaken before (the versions of traditional homeownership-preservation programs), namely, mortgage rate reductions, borrower counseling, and, when the loss of a home seems almost certain, a halt of foreclosure to buy time (Rucker, 2008) had little or no success. The U.S. lawmakers are not sure whether the bankruptcy judges should erase mortgage debt for insolvent borrowers, while others envision a government-backed entity that would vacuum up battered home loans. (Rucker, 2008) The plans that were proposed by the government, turned out to be ineffective, and the lawmakers started to reexamine the action plans that had once seemed far-fetched. The plans for wholesale rewriting of mortgage terms as well as sweeping government bailouts that were unacceptable at the very beginning of the U.S. housing crisis tend to gain traction as other attempts to stabilize the housing market short (Rucker, 2008).
So, what are the U.S.
Congress and Administration actions concerning the mortgage and credit crisis in the housing industry? One of the proposals was similar to the initiative offered to solve the Savings and Loan crisis of the 1980s. However, the idea of government bailouts gained almost no support, as it was called to be irresponsible, and the critics of this solution claimed that government bailouts will promote imprudence in the nearest future. The U.S. government develops plans involving an overhaul of the mortgage regulatory system and loan modifications. As it is claimed by Henry Paulson, Treasury Secretary, the ongoing housing correction continues to adversely impact national economy and there is a need for a regulatory overhaul that would include a one-page mortgage disclosure document to be signed by borrowers at a home closing and uniform national standards for mortgage brokers. (Housing now biggest risk to U.S.
economy) The U.S. President has signed a $168 billion economic stimulus package. This package includes tax rebates. Under this package, checks (from $300 to $1,200 per U.S. household) will be sent to lower- and middle-class tax payers. The U.S.
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government considers that this will help the U.S. citizens, will add approximately 0.7-1.0 percentage point to GDP growth and will help to soften the downturn of the U.S. economy (Chief Investment Strategist Corner).
There is another action, under which Henry Paulson, the U.S. Treasury Secretary, together with 6 of the largest U.S. mortgage lenders, develops an anti-foreclosure plan. This plan is aimed to help 50,000 to 100,000 homeowners keep their homes. Another plan involves expanding loan limits on Federal Housing Administration loans and increasing the cap on loans.
This action will affect only the market for higher-priced homes, and will be very difficult to implement (Chief Investment Strategist Corner).
In addition, the U.S. Federal Reserve Board plans rate cuts, as it expects the short-term interbank rate to be lowered another 75 basis points by March 2008. This measure will facilitate to restore confidence to the credit and lending system of the U.S. The U.S. President outlined the housing rescue plan. According to this plan, the rates for subprime mortgages are planned to freeze for five years to help the borrowers affected by the U.S. housing industry crisis.
The U.S. Treasury Department also asked mortgage providers to undertake all efforts in order to freeze interest rates for more than a million troubled borrowers. Homeowners seeking assistance can choose from three options. The borrowers can have their mortgage payments to be frozen at an introductory rate for five years, to refinance their mortgage at a lower rate, or refinance the mortgage using the Federal Housing Administration services. According to the U.S. government preliminary estimates, over 1.2 million borrowers, who face preventable foreclosures, will readily qualify for such help. The U.S.
president claimed that the efforts aimed to facilitate the process of refinancing mortgages, announced in August 2007, began to work. Over 230,000 letters were mailed out to the homeowners to publicize a national telephone help line. (Rucker, 2008) The U.S. President also asked the Congress to provide more funds for mortgage counseling initiatives and to undertake more decisive actions to tax code reforms and more effective regulation of mortgage financiers. George Bush added that his plans “did not signal a “bail-out” for mortgage lenders, property speculators or those “who made reckless decisions to buy a home they knew they couldn’t afford. (Bush details housing rescue plan) Evidently, there is no perfect solution for such complex problem, but the initiatives outlined by the U.S.
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government are a sensible response to a serious challenge. (Bush details housing rescue plan) However, something other than lower interest rates should be developed, and, as it is claimed by the Decision Economics, a freeze on mortgage interest payments is a big step in the right direction, if it works. In conclusion it may be said that despite the actions undertaken by the U.S. government, the mortgage defaults continue to increase and have a negative impact on the national economy. The efforts from the housing industry are also not very efficient, and the next steps must cut through complicated investor contracts that prohibit lenders from easing loan terms, and must also account for a serious drop in home values. (Rucker, 2008) Works Cited Bush details housing rescue plan.
3 March 2008 . Chief Investment Strategist Corner. 3 March 2008 . Community Planning and Development. 3 March 2008 . Housing now biggest risk to U.S. economy: Paulson Treasury secretary calls for loan modifications, overhaul of mortgage rules . 3 March 2008 .
Rucker, Patrick. Stronger action being considered to ease U.S. housing crisis. 20 February 2008. 3 March 2008 . Top policy agenda items for the housing industry in 2008. 3 March 2008 ..
