Cash-strapped homebuyers and borrowers facing foreclosure will get some relief from a housing bill passed by the House on Wednesday but the bill won't solve the deep-rooted ills of the U.S. housing market.
The bill was widely praised by real estate industry groups but doubts remain about how much real-world impact it will have for consumers.
"This isn't going to be the catalyst for a better housing market," said Mark Zandi, chief economist at Moody's Economy.com.
"It may staunch some of the downturn, but it's going to have a very modest positive impact."
The vote on the bill came after months of negotiations between House and Senate lawmakers and the Treasury Department.
President Bush initially opposed it but now could sign as early as this week.
The highlights include: $300 billion to provide more affordable mortgages to troubled homeowners, nearly $4 billion in grants to help communities fix up foreclosed properties and a $7,500 tax credit for first-time homebuyers.
Andrew Lenz, a 27-year-old first-time buyer in Minneapolis, said the tax credit won't affect his decision to make an offer soon on a foreclosed townhome, but added, "Every little bit helps."
And plenty of first-time buyers won't get help.
The tax break only applies for homeowners who purchase between April 9, 2008 and July 1, 2009.
The full amount of the credit also is only available for individuals with incomes under $75,000 or couples earning less than $150,000.
Moreover, it will have to be paid back, interest-free, over 15 years.
In Baltimore County, Md., where foreclosure filings between January and March were running at nearly four times last year's levels, Liz Glenn was grateful to see the provision in the bill for $3.9 billion in grants to help local governments buy and fix up empty homes.
The money "would enable us to acquire and rehab more homes and offer them at an affordable price," said Glenn, a community planning official.
The county, which surrounds Baltimore's city limits, currently works with nonprofit developers to fix and sell up about 20 homes a year -- nowhere near enough.
Maryland estimates it could receive about $30 million in funding as part of the bill, said Carol Gilbert, a state housing official.
Homeowners, who are spending more than 31 percent of their income on their house payment, may qualify for a new, more-affordable loan backed by the Federal Housing Administration under the bill.
Lenders, however, would have to agree to take a loss on the existing loans, and would walk away with at least some payoff and avoid the costly foreclosure process.
Lender participation is also voluntary.
"The industry really has to step up and use it," said Bruce Dorpalen, director of housing counseling for Acorn Housing.
In addition, homebuyers who purchase a property with an FHA loan will no longer be able to receive financial assistance from the sellers.
The bill closes a loophole that let sellers channel money to buyers through charities.
While critics say defaults from these no-money down loans are rising to such an extent that they threaten to put taxpayers on the hook, supporters say many borrowers with good credit but without enough money saved up for a down payment will be locked out of the market.
"That's going to cause a lot of people not to be able to buy a house," said Mike Davis, a Realtor in West Des Moines, Iowa.
"That's really going to hurt."
In a move to shore up mortgage finance companies Fannie Mae and Freddie Mac , the bill allows the government to buy stock in them and extends a line of credit to the companies.
Over the past week, investor fears about the health of Fannie and Freddie, which buy or guarantee about half of the nation's mortgage loans, have rippled through the market, causing a sharp rise in mortgage rates since late last week.
Rising rates mean more trouble for the housing market as fewer borrowers are able to afford the higher monthly payments.
Average rates on 30-year fixed rate loans under $417,000 have soared to more than 6.8 percent -- the highest rates in a year, according to data publisher HSH Associates.
Besides worries about Fannie and Freddie's future, rising rates reflect an effort by banks recapture money lost on mortgages made in 2005 and 2006.
Keith Gumbinger, a senior vice president with HSH Associates, said, "You have to offset those losses some way or another."