From Homescape

Democrats in the Senate have decided to put their boxing gloves away — for now at least — and pass President Bush’s economic stimulus plan. Congress overwhelmingly approved a $168 billion economic stimulus package on Thursday. Once Bush signs the bill, millions of Americans can expect government checks in the mail by late spring or early summer.

The International Herald Tribune reports that the Democratic senators had wanted to add more than $40 billion to the House version, a proposal that would have brought the cost of the package to about $204 billion over two years. But Republican senators stood their ground, blocking the Democrats’ efforts to get the 60 votes they needed to end debate. The two-year plan will inject $152 billion into the economy this year.

Money in consumer pockets
The legislation would provide $600 payments for individuals, $1,200 for couples, plus $300 for each child younger than 17. It would cap eligibility at $75,000 in adjusted gross income for individuals and at $150,000 for couples. Workers who can show $3,000 in earned income last year — too little on which to pay income taxes — would be eligible for payments of $300. The payments would be sent out separately from tax refunds.

The Catch-22 of the plan is that while it will give people a good chunk of spending money, how they choose to spend or not spend it will affect whether it will really boost the economy. Some economists argue that some families, in preparation for a recession and worries over job loss, will actually save their half instead of spend it or use it to pay outstanding debt. Consumers who choose to spend their money on products manufactured and produced overseas, will be putting fewer dollars back into the American economy.

Housing industry bailout
Working with the industry’s mortgage giants, congressional leaders had also struck an agreement on the stimulus package that includes a one-year rise in the loan limit for Fannie Mae and Freddie Mac, to $729,750. USA Today had reported: “Currently, Fannie and Freddie can buy only mortgages that are $417,000 or less. Jumbo loans [those more than $417,000] have higher rates because they’re viewed as riskier for investors, and that’s hurt borrowers in places like California, where the median home costs about $489,000. The stimulus package also raises the dollar amount on loans insured by the Federal Housing Administration (FHA) — to $729,750 from $362,790 — which helps out first-time home buyers and working-income families.

Due to lax lending standards during the housing boom, many new homeowners were approved for absorbent loan amounts to purchase luxury homes. Congressional leaders hope that the plan will help millions of homeowners refinance to take advantage of the falling interest rates.

In an ABC Nightline News “Realty Check” segment on Thursday, I was shocked to see that many of those homeowners that had been approved for these massive loans two years ago, can no longer afford to pay their monthly mortgages and are putting their McMansions back on the market for sale. One couple interviewed — the wife a doctor and the husband a restaurant owner — said they are paying $6,000 a month on their mortgage and are quickly loosing money on their investment. Their home has been on the market for three months without any serious bids. The couple bought the home in 2005 for $1.2 million and is now listing it for $1.88 million. Foreclosures in their California neighborhood have driven down property values, making it even more difficult to sell at their asking price.

Some critics argue that it shouldn’t be Congress’ responsibility to “bailout irresponsible lenders and greedy homeowners.” But whether you agree with the recent stimulus plan or not, we can all agree that the housing industry problems are spreading through the financial sector like a contagious virus. A lesson for future homeowners: Don’t buy what you can’t afford. A home should be a home and not just an investment.

Is Bush’s stimulus plan an economic boost or an unneeded bailout?

Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com