By Al Heavens<br />Inquirer Real Estate Columnist<br /><br />The much-touted housing-rescue bill has been passed and signed by President Bush, but don’t expect to see change soon.<br />The “bailout” is more symbolic than anything else, said Farah Jiminez, executive director of the community-development corporation Mount Airy USA, likening it to putting “lipstick on a pig.”<br /><br />Massachusetts Institute of Technology economist William Wheaton says that other than benefiting Fannie Mae and Freddie Mac, the “specific measures actually offer remarkably small incentives, with complicated features that most homeowners or potential homeowners will likely choose to forgo.”<br /><br />The lion’s share of the foreclosure-rescue funds will find their way West and to Florida – the “foreclosure belt,” as I call it. When I asked Philadelphia’s Department of Housing and Community Development if it had received guidance from the feds about any money, the answer was, “No.”<br /><br />There have been questions about how the $7,500 tax credit for first-time home buyers will work. Realtors have been going gaga over the whole idea, assuming that it would do for sales of previously owned homes what the new-home tax rebate accomplished in the 1970s.<br /><br />If you read the fine print, however, you notice that the buyer has to repay the $7,500 in 15 annual installments.<br /><br />”[It’s] a no-interest loan for 15 years [that] saves the buyer at most just a few hundred dollars a year – the annual value of the forgone interest,” Wheaton said. “This seems like a very small amount to influence the decision of anxious new buyers waiting on the market’s sideline.”<br /><br />The provision for increasing the standard deduction for owning a home might stimulate buying, but only for those who generally have low income, little or no debt, and few other deductions. Most taxpaying homeowners itemize, and thus the provision has no impact.<br /><br />Even if it were a no-strings-attached $7,500, a few things would work against the success of such a program, no matter the size of the credit.<br /><br />One is that fixed interest rates are rising, thanks to the need of Fannie Mae and Freddie Mac to guarantee enough of a return on the secondary market to attract buyers.<br /><br />Another is that the cost of living is increasing as well, thanks primarily to spikes in energy prices that affect just about every other commodity. This means that first-time buyers, who usually have to stretch for down payments and closing costs, have less opportunity to save for them.<br /><br />”As I told the National Association of Realtors at its Washington meeting in May, the tax credit is worthless,” said Philadelphia mortgage broker <span style=”font-weight:bold;”>Fred Glic</span><span style=”font-weight:bold;”>k</span>. “Buyers need cash up front for a down payment instead.”<br /><br />In recent years, the mortgage industry introduced ways to make home buying easier, though not safer.<br /><br />One was to allow buyers to make down payments of less than 20 percent and pay private mortgage insurance on the difference. Because of heavy losses, rates and restrictions on who can get PMI have increased.<br /><br />Lenders are more skeptical about doing 100 percent financing, because many such loans are the ones going into default. If you have impeccable credit, a lot of lenders and mortgage insurers still will look favorably on less money down, so shop around.<br /><br />The other alternative was an adjustable-rate mortgage product, many of which have been discredited and are no longer being offered.<br /><br />With mortgage choices limited and rates rising, the best option might be to buy less house than you can afford just to get a foot in a door.<br /><br />That’s the advice from an online self-help community called PeopleJam.com.<br /><br />”The term ‘house poor’ comes from people who spend the majority of their income on a mortgage payment,” PeopleJam says. “These are the same people that end up filing for foreclosure. Lenders will tell you that you can afford more than 25 percent of your household income, but they are the same people that helped the housing market crash.”<br /><br />Jiminez offers similar counsel: “Your goal should be to buy a house you can afford, and to pay the mortgage so you can keep it.”<br /><br />”On the House” appears Sundays in The Inquirer. Contact Alan J. Heavens at 215-854-2472 or firstname.lastname@example.org.