This is an interesting article with regard to incentives for low income people to buy homes. I think the most important part however is the last section with regard to "Pushing too Hard".
Homeownership bill: political currency
$400 million effort aimed at minorities delights industry
By Steve Kerch, CBS.MarketWatch.com
Last Update: 3:41 PM ET Oct. 2, 2003
CHICAGO (CBS.MW) - Efforts to increase homeownership among minorities got a boost this week as the U.S. House of Representatives passed a $400 million bill that provides down-payment and closing-cost aid to 80,000 lower-income buyers over the next two years.
Dubbed the American Dream Downpayment Act, the measure authorizes grants averaging $5,000 for first-time buyers whose incomes are less than 80 percent of a local area's median. The House passed the Republican-sponsored bill on a voice vote; a companion bill is pending in the Senate.
The bill's sponsors estimate it could result in construction of 1,000 new homes and the creation of 2,500 jobs.
But the first spin-off is the political spin being put out by GOP leaders going out of their way to point out the benefits to minorities.
"African Americans and Latinos will benefit from the new legislation since it provides much needed money to assist residents in the purchasing of a home," said Pamela Mantis, Republican National Committee deputy press secretary. "The benefits of this bill will not only help new homeowners, but will also contribute to job creation, adding to the increased momentum of the nation's economic recovery."
U.S. Housing and Urban Development Secretary Mel Martinez noted that President Bush asked Congress to fund the American Dream Downpayment Initiative as part of the administration's "Homeownership Challenge" to increase minority homeownership by 5.5 million families by 2010.
The initiative is certainly a noble one. Two-thirds of all American households own their own home, but the homeownership rate for African Americans and Hispanics is less than 50 percent. While that rate picked up throughout the 1990s expansion, the gap between minority and white homeownership remains large.
"Down payment and closing costs are the biggest hurdles to homeownership for many American families. By helping those struggling to meet these costs, we can give more families an opportunity to build assets, we can get more Americans into homes, we can create jobs, and we can boost local economies," said House Financial Services Committee Chairman Michael Oxley, R-Ohio
Last year, HUD released a report that concludes adding 5.5 million minority homeowners will stimulate an additional $256 billion in benefits to the U.S. housing sector. In addition, HUD created The Blueprint for the American Dream Partnership, a coalition involving every housing-industry segment to build broad support for the President's goal of increasing homeownership opportunities for minority families.
Realty industry climbs aboard
It was no surprise real-estate trade groups jumped on the Republican praisemobile. The National Association of Realtors added at least two Democratic proponents of the bill to its greeting card.
"Realtors applaud the Bush administration and (U.S.) Reps. Oxley,, Barney Frank, D-Mass., Bob Ney, R-Ohio and Maxine Waters, D-Calif., for their outstanding leadership and commitment to helping more families achieve the American dream of homeownership," NAR President Cathy Whatley said.
"Although our homeownership rate is at a record high, one out of seven American families still faces critical housing needs. The American Dream Downpayment Act is a tremendous program that would not only create thousands of housing opportunities but also help sustain the housing market, which has been the pillar of our economy."
The Mortgage Bankers Association of America heaped on more accolades, for the leadership of the House Financial Services Committee, the sponsor of the bill, Rep. Katherine Harris, R. Fla., and for Martinez.
"The ability to come up with a down payment and closing costs remains a challenging hurdle to many families," said Kurt Pfotenhauer, MBA's senior vice president of government affairs. "Today, thanks to this legislation, more families will be able to overcome this hurdle and enjoy homeownership."
Pushing too hard?
It is true that down payments and closing costs are an added barrier to homeownership. And providing some cash to strapped borrowers will no doubt convince some to dive into homeownership.
But the fact is that the private mortgage market has already been doing its best to make everybody a homeowner, with plenty of zero-down options and in many cases allowing closing costs to be rolled into mortgages themselves. And it may be we've already pushed the envelope too far. See previous Resident Authority.
Mortgage delinquencies, while not near the records of previous recessions, are still high by the standards of what should be economic recovery. And there is ample evidence that the delinquency and foreclosure rates on subprime loans -- the loans most likely to go to homebuyers on the margins of creditworthiness -- are massively higher.
The bottom line is that the issues involved in providing decent, affordable housing to lower-income Americans are much too complex to be solved by a $5,000 check. But you can bet they'll be plenty of them cut - if not to average Americans, then at least by the housing-industry lobbyists to all the politicians they are now fawning over.
Steve Kerch is the real estate editor of CBS.MarketWatch.com in Chicago.
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