Regulations Aiming to Turn Around a Sluggish US Housing Market

In interesting news, the US House of Representatives has voted overwhelmingly to reduce some requirements and ease burdens on home loans for certain types of homes. At the height of the financial crisis, homeowners across the country were forced to foreclose home loans due to their inability to pay mortgages and home loans. In the aftermath of the crisis, strict laws were enacted to reign banks and other financial institutions from making home loans easily available to everyone.

The flashpoint of the economic recession of 2008 was home mortgages. Just before the crisis, investors were lured by banks into investing in high-interest mortgages that were risky; this became apparent when the rates of interested went north and the bubble surrounding the real estate industry burst in 2007-08. As default payments by millions of mortgage home owners hit the roof, the value of investments held by banks and institutions went south and hit rock bottom.

The recent legislation is seem as a move to ensure that the consumer public can afford to repay loans; lawmakers insist that it will provide great relief by bringing regulations within reach of the average American with low to moderate incomes who are intending to buy homes. However skeptics still maintain that this will have a very drastic impact on prospective home buyers looking to obtain credit to buy first-time homes. A member of the committee on Housing Financial Services comments that the legislation will end up rolling back consumer protection completely and expose them to predatory practices indulged by some in the financial market which led to the crisis in the first place.

A substantial percentage of first-time home buyers in the US who pick up mobile homes are among the most economically weak and low-income earners. The overrriding fear is that this segment will be subject to tactics used by banks to lend large sums at higher interest rates, luring them to invest in more expensive mortgages by working around regulations even when they qualify automatically for low-cost alternatives.

In the traditional real estate market, home owners are already exposed to risks that are significant and can have serious impact on their earnings and savings; factors like inability to refinance, higher interest rates and depreciation are the prime risks. For example, depreciation is a factor that sets in almost as soon as a home is purchased.

During the financial crisis, it was extremely difficult to get ‘honest data’ from banking circles regarding the state of housing finance and home loans. Piecing together information from bank reports was certainly not providing an accurate picture because banks for one were delaying from showing home foreclosure filings in their monthly reports. On the other hand, home owners were simply unable to meet mortgage payments and stopped paying altogether, perhaps even using it as a strategy for foreclosure. That said, the real picture of the US housing market may still not be completely understood.

Chicago Uses TIF Revenue for Affordable Housing

Earlier this year, the Chicago, Illinois City Council Finance Committee passed a measure that would allocate more money for affordable housing. The measure was approved by a 13-8 vote and now goes before the full Council. Some Council members are concerned that Chicago Mayor Richard Daley’s opposition could cause the bill to stall.

If passed, the measure would allow about $100 million a year to be allocated from specially designated “tax increment finance districts,” and be used to preserve or build affordable housing. As written, the bill requires that 20 percent of the money collected from these areas be set aside. Tax increment finance districts are areas in which the amount of money that can be collected by local governments is frozen at a pre-determined amount. Anything collected above and beyond that amount is used to finance construction projects in the area.

Several cities across the U.S. use TIF money to promote development in areas that are either in decline or simply need to be refurbished. One common concern with TIF districts is that they will become gentrified – meaning middle and upper income people begin moving into the area, forcing lower-income residents out. Communities often work to prevent gentrification by instituting affordable housing requirements in TIF districts.

Both Mayor Daley and the Community Development Department have expressed concern that allocating so much money for affordable housing will interfere with other development goals aimed at creating jobs.

There is no indication yet when the measure will be voted on by the City Council or how quickly the money would be allocated.