BusinessReport.com

Just off La. Highway 22 in Maurepas, Michelle and Neil Richard are putting the finishing touches on their 5,200-square-foot dream home.

“It all just kind of fell into place,” Richard says.

It started about four years ago when the two graduated from LSU and soon found work. Two years ago, they married and saved for a down payment. About 10 months ago, they found land in Ascension Parish, in an area booming with development, lined up a builder and set their life plan in motion.

There have been a few surprises along the way. Their “little blessing,” baby Madeline, was born seven months ago. And, if the Richard family qualifies, they might be among the nation’s first-time buyers to benefit from the newly signed federal Housing and Economic Recovery Act of 2008.

Although the measure is aimed at bailing out some homeowners struggling in the nation’s subprime loan debacle and slipping into foreclosure, the bill also includes stimulus provisions to hotwire the national housing downturn.

Proponents of the measure concede taxpayers will foot a hefty tab, but remained focused on the bill’s short-term economic benefits. Opponents staunchly say it won’t help enough people to justify the long-term problems it could cause with the economy.

“I think it’s a good bill,” says Joe Didier, president of the Capital Region Builders Association and owner of Didier Homes. “I realize the taxes will affect us all and some tax dollars will go to bailing some people out, but it’s worth paying a few hundred dollars to keep up housing values. If housing lags and property values decline, that’s a lose-lose situation.”

But Terry Coxen, economist and senior editor with Arizona-based Casey Research, calls it a “horrible bill” that Congress passed without considering the fallout.

“It won’t stop the housing crisis,” Coxen says. “It’ll just be something that campaigning congressmen can point to as what they did.”

He contends the measure won’t help many people and could keep house prices beyond prospective buyers’ reach. “When the government spends taxpayer money to help one person avoid a foreclosure, it is preventing someone else from buying that house. It’s painful for many people, but it’s not a bad thing if those prices come down.”

Interfering with the housing market cycle will prolong the crisis at least another year or more, Coxen says. This would be especially troublesome, he says, because the nation is in a recession, not a slowdown, which also would be extended. He points to earlier failed government attempts to stem housing prices, which he says prolonged the Great Depression of the 1930s.

“How can you not be in a recession when the credit market freezes up?” he asks. “Talk to someone who’s tried to borrow.”

Years of government subsidy to the housing industry caused the housing bubble. He cites the Federal Reserve’s cheap credit and housing-friendly tax rules “screaming buy a house” as examples.

While Didier says he doesn’t typically advocate a tax bailout, he does anticipate the bill’s $7,500 tax incentive to first-time buyers could boost the starter house market and significantly ease the inventory buildup.

“It’s smart money to buy now,” he says. “I don’t consider it a windfall, but do think it’s a tremendous opportunity for a first-time home buyer.”

The bill is aimed at aiding states like California, Florida and Nevada, where the housing bubble burst and left homeowners struggling with subprime and adjustable-rate loans, declining values and foreclosure. While that didn’t happen in Louisiana with its stable housing market, low foreclosure rate and appreciation, Didier says local buyers can still benefit.

Linda Fredericks, president of the Baton Rouge Association of Realtors, maintains the bill will help more than hurt.

Victims of hurricanes Katrina and Rita also could benefit from the bill as reconstruction continues, Fredericks says. The bill singles out first-time buyers, but it applies to those who have not owned a house in the last three years. Hurricane victims could quality for the tax benefit, as well as higher loan limits.

“This is a dollar-for-dollar credit on tax dollars owed, not a deduction,” Fredericks says. “This is huge. It allows people to have money to buy necessities now. If they need furniture, a refrigerator, washer or dryer, they will not need to burden themselves with credit at high interest rates.”

Vickie Theriot, program administrator of EBR Mortgage Finance Authority, says the bill makes mortgage bonds permanently exempt from the alternative minimum tax. For bond investors, it could mean not paying tax on interest earned on these bonds. For the authority, it means selling the bonds at a lower interest rate, and the borrower gets the loan at a better rate.

Also, the bill allows states to offer more tax-exempt bonds each year, Theriot says. The cap varies per state and the bonds are limited to areas like housing, student loans or pollution.

Under a temporary provision in the legislation, housing authorities also will be able to issue bonds to provide loans to refinance existing mortgages. It would allow borrowers to get a fixed-rate loan under certain guidelines. These bonds would have to be issued separately and specifically for refinancing. The EBR authority is considering the move, but she says this measure is aimed at areas with large volumes of “exotic loans” such as subprime and adjustable-rate mortgages.

Because little of this occurred in the Baton Rouge area and foreclosures are still among the lowest in the nation, they’re unsure if there are enough borrowers who need refinancing to warrant the bond issue. Also, applicants must have a decent credit rating and an existing loan still being paid on time to qualify for this loan.

Overall, Theriot agrees it’s the perfect storm for the first-time buyer to make a move in the market. For those who qualify, the bill’s tax break plus the authority’s low-interest loan that can include a grant that covers 4% of the loan [which can be used for closing costs or a down payment] make it an opportune time to buy. She adds, “In East Baton Rouge and Louisiana in general, our home prices are still so affordable.”

In her 29 years with the Authority, Theriot says she’s never seen a market more favorable to first-time buyers, as well as a more stable market overall in the area. It didn’t seem all that long ago with the market crash of the mid-1980s when she had four file cabinets full of loans in foreclosure. Today, there is only one folder, and it’s holding three loans.