While the media today focused mostly on the testimony of former Federal Reserve Chairman Alan Greenspan before the Senate Banking Committee, there was other news coming out of the hearing.

Federal Deposit Insurance Corporation Chairperson Sheila Bair told lawmakers about her plans to use methods pioneered by several existing programs to encourage mortgage servicers to increase the pace of loan modifications for homeowners facing foreclosure.

The proposed initiative in which the FDIC is working closely with the Department of the Treasury, will involve the government setting standards for loan modifications and then guaranteeing the resulting modified loans.

Ms. Barr said in her testimony that the bulk of the banking industry is healthy and well capitalized but there is a liquidity problem caused by uncertainty about the value of mortgage assets. This is making banks reluctant to lend to each other or lend to consumers and businesses.

She recounted recent actions by her agency to increase confidence in the banking system including increasing deposit insurance coverage and providing senior unsecured debt guarantees through the recently announced Temporary Liquidity Guarantee Program.

Ms. Bair said that since the program was unveiled at the beginning of last week, “we have seen steady progress in reducing risk premiums in money and credit markets. Yields on short-term Treasury instruments, which had approached zero in mid-September, have now risen back in line with longer-maturity instruments. Quotes for Libor, the London Interbank Offer Rate, also have declined in relation to Treasury yields - indicating a slow thaw in the interbank lending market. Interest rates on short-term commercial paper have fallen back to their lowest levels since mid-September, indicating that liquidity is also starting to return to that market…. We are making steady progress in returning money and credit markets to a more normal state.”

She turned to the current unprecedented wave of foreclosures which she described as “often a very lengthy, costly and destructive process that puts downward pressure on the price of nearby homes. While some level of home price decline is necessary to restore U.S. housing markets to equilibrium, unnecessary foreclosures perpetuate the cycle of financial distress and risk aversion, thus raising the possibility that home prices could overcorrect on the downside.

“The continuing trend of unnecessary foreclosures imposes costs not only on borrowers and lenders, but also on entire communities. Foreclosures may result in vacant homes that may invite crime and create an appearance of market distress, diminishing the market value of other nearby properties. In addition, the direct costs of foreclosure include legal fees, brokers’ fees, property management fees, and other holding costs that are avoided in workout scenarios. These costs can total between 20 and 40 percent of the market value of the property. The FDIC has strongly encouraged loan holders and servicers to adopt systematic approaches to loan modifications that result in affordable loans that are sustainable over the long term.”

Specifically she suggested that loan guarantees could be used as an incentive for servicers to modify loans with the government establishing standards for loan modifications and providing guarantees for loans meeting those standards.

The Chairperson cited the steps taken by the FDIC following the failure of IndyMac Bancorp as an example of what the government can do to stem the foreclosure tide. She said that already more than 3,500 borrowers have agreed to loan modifications with the FDIC and these modifications have resulted in lowering monthly payments by over $350 on average.

“By achieving mortgage payments for borrowers that will be both affordable and sustainable, these distressed mortgages will be rehabilitated into performing loans and avoid unnecessary and costly foreclosures. We expect that by taking this approach, future defaults will be reduced, the value of the mortgages will improve, and servicing costs will be cut. The streamlined modification program will achieve the greatest recovery possible on loans in default or danger of default, in keeping with our statutory mandate to minimize impact on the insurance fund and improve the return to uninsured depositors and creditors of the failed institution. At the same time, we can help many troubled borrowers remain in their homes. Under the program, modifications are only being offered where doing so will result in an improved value for IndyMac Federal or for investors in securitized or whole loans, and where consistent with relevant servicing agreements.

She said she hoped that the program will be a catalyst for promoting more loan modifications for borrowers from other banks.

The FDIC has also been playing a role in the implementation of the HOPE for Homeowners Act Ms. Bair said. The FDIC has joined the Departments of Housing and Urban Development (HUD) and Treasury and the Federal Reserve in establishing requirements and standards for the Program outside those specified in the authorizing legislation, and prescribing necessary regulations and guidance to implement those requirements and standards.

“The HOPE Program incorporates many of the principles the FDIC considers necessary to be effective. It converts current problematic mortgages into loans that should be sustainable over the long-term and subsequently convertible into securities. It also requires that lenders and investors accept significant discounts and prevents borrowers from being unjustly enriched if home prices appreciate. ”

She said that the Emergency Economic Stabilization Act (EESE - popularly known as “the bailout,) recently passed by Congress, includes a number of provisions to encourage loan modifications. In particular, EESA addresses the issue of foreclosure mitigation and provides authority that could hold significant promise for future loan modifications. Under EESE, the Secretary of the Treasury is empowered to use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

Chairperson Bair said that “Applying workout procedures for troubled loans in a failed bank scenario is something the FDIC has been doing since the 1980s. Our experience has been that performing loans yield greater returns than non-performing loans. In recent years, we have seen troubled loan portfolios yield about 32 percent of book value compared to our sales of performing loans, which have yielded over 87 percent.”

In conclusion Ms. Bair said, “In recent weeks, the FDIC has engaged in unprecedented actions to maintain confidence and stability in the banking system. Although some of these steps have been quite broad, we believe that they were necessary to avoid consequences that could have resulted in sustained and significant harm to the economy. The FDIC remains committed to achieving what has been our core mission for the past 75 years - protecting depositors and maintaining public confidence in the financial system.”

For more information about loan modification options, be sure to research www.helpUmodify.org for valuable tools and resources that will help guide you through the process.

Ok, it’s come to the point where I can no longer brush this off as a coincidence.  The conversation that I am having over and over again goes something like this…..

“Hi Scott, I am in the process of buying a home and was qualified for a Teacher loan (Extra Credit Teacher Program or CalSTRS 80/17) and my loan officer just told me that the underwriting guidelines have changed and I no longer qualify for this program.

I was doing some research on the internet and ran across your blog.  Have there been any changes?  I can’t seem to find anything to back up what i’m being told by my loan officer.  Please help!”

This is not an actual conversation ver batim but I assure you it’s really, really close!

Here’s what the “other guys” don’t want to tell you - They don’t like to offer these loans because…ok, brace yourself…….drum roll please……..They don’t make a lot of money giving you one of these special loans.

Can you believe it?  I know you’re shocked that a loan officer or lender would actually ignore the best interest of their client just to make more money for themselves……Come on Scott, that doesn’t happen.

I know I sound a little irritated and even bordering on hostile as I write this and I guess it’s because I am.

I sincerely hope that you have run across this post because you didn’t take “no” for an answer.  I want you to know that although there are often changes in loan qualification guidelines, there have been relatively few changes in these programs.

The reason why there is little information out there about these programs is that lenders and loan officers are not eager to work for a reasonable wage and help a segment of our community that quite frankley does not get enough credit for the contributions you make to society.

Ok, I feel a little better now that I’ve gotten this off my chest.  I’ve put together a bunch of resources for you and we hold free web classes regularly to educate teachers, public employees and first time home buyers about these special programs.

Click Here for these valuable resources

There are links all over this site to contact us for more information or you can call my cell phone anytime.  I can be reached at 714-336-8286.  The office number is 866-667-6724 and anyone here will give you an honest answer and look out for your best interest.

Chairman Frank and HUD Secretary Preston Negotiate DPA Agreement

Chairman of the House Financial Services Committee, Barney Frank, has discussed publicly the fact that he has negotiated an agreement with HUD Secretary Steve Preston that will provide for the continuation of privately funded downpayment assistance.

The agreement allows HUD to impose risk-based pricing on downpayment assistance transactions which provides Secretary Preston the fiscal protection he seeks for the FHA insurance fund.

According to an Inman News article published today, Chairman Frank is quoted as saying “The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing,” Frank said at Saturday’s hearing. “That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground — and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there — it has the approval now of the Secretary of HUD.”

Thanks to the advocates of downpayment assistance, there is significant momentum in this direction. Nehemiah urges all supporters to continue their campaign to save DPA by contacting their Senators and request a swift passage of pro-DPA legislation.

Read the entire article:http://www.inman.com/news/2008/09/10/congress-weighs-reprieve-seller-funded-gifts

Stay tuned for news on this subject - It looks like we may see something by October 1st if we’re lucky!

Title IV of HR 3221is where you will find the information you have been looking for if you want to consider this program as an option to refinance your home. This program claims to serve approximately 400,000 home owners.

What hasn’t been getting a lot of press is what the requirements are for qualifying for this program. Following is an excerpt from this Legislative Notice issued June 18th, 2008 by the Senate Republican Policy Committee.

HOPE for Homeowners Program - The bill establishes a new program entitled the HOPE for Homeowners Program. The program will be overseen by a Board made up of the Secretary of HUD, the Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the
Chairman of the Federal Deposit Insurance Corporation (FDIC). The Board will have the authority to develop standards within the framework of the legislation.

Eligible Borrowers - Only owner-occupants who are unable to afford their mortgage payments are eligible for the program. No investors or investor properties will qualify. Homeowners must
certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt to income ratio greater than 31 percent as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.

New Loan Amount - The FHA refinancing program will let borrowers who have defaulted on their existing mortgages to refinance into FHA-guaranteed loans. Lenders must write down the principal balance of the loan to no more than 90 percent of the current value (and in some
circumstances less), and put the borrower in a 30-year fixed rate mortgage. Loans up to $550,000 are eligible. FHA is not allowed to charge insurance premiums sufficient to cover the risk of these borrowers, so it will result in a cost to the government, which will be paid for at first by funds from the Housing Trust Fund.

Equity & Appreciation Sharing -In order to avoid a windfall to the borrower created by the new 90 percent loan-to-value FHA-insured mortgage, the borrower must share the newly-created equity and future appreciation equally with FHA. This obligation will continue until the
borrower sells the home or refinances the FHA-insured mortgage. Moreover, the homeowner’s
access to the newly created equity will be phased-in over 5 years.

Existing Subordinate Liens - Before participating in this program, all subordinate liens must be extinguished. This will have to be done through negotiation with the first lien holder.

Qualified Safe Harbor - The legislation provides loan servicers with an incentive to participate in the program by offering a safe harbor against legal liability.

Program Size - The program is authorized to insure up to $300 billion in mortgages and is expected to serve approximately 400,000 homeowners.

Program Sunset - The program will begin October 1, 2008 and sunset on September 30, 2011.

The biggest challenges many folks will find with this program are the strict guidelines for qualifying. It is important that you completely understand this program when assessing your options.

In the borrower qualification guidelines issued by the Department of Housing and Urban Development on July 24, 2008 you will find even more restrictions….Here are some of the highlights:

• Borrower must certify that they have not intentionally defaulted on the eligible morgage or on any other debt (false statement = fine and/or 5 years in prison)
• Current lender must voluntarily forgive balance of existing loan to 90% of current market value.
• No pre-payment penalties can exist
• No subordinate financing (2nd mortgages) can exist. Subordinate lien holders must forgive liability.
• Requires borrowers to share equity and any future appreciation in the value of the property with the Federal Government.

Since this program does not begin until October 1st, 2008 there are still some detail about how it will work that have not been released. It does seem that this program is a viable option for those that do not plan to ever move or refinance (due to having to pay the Federal Government 50% of all future equity) and can qualify for an FHA loan using full income tax returns, pay stubs and asset documentation.

Loan modification is another option for folks that are looking for temporary to permanent payment relief and even buy some time to figure out what is best for you and your family. This can also be a confusing process due to an increase in loan modification Scams that are beginning to rear their ugly heads in these difficult times.

It seems that as quickly as sub-prime lenders where going out of business, new loan modification companies are opening up to prey on the folks that they took advantage of the first time!

For an honest assessment of your options please do some research on this site - HelpUmodify.org or call us today at 1-866-667-6724 and ask for Nancy, Diane or John.

As the fight for Nehemiah continues do not lose hope, there are still many down payment assistance programs available if you are a member of CalSTRS, CalPERS, or if you are a first time home buyer you can look to CalHFA for down payment assistance.

If you’re unsure what program you might qualify for, complete this simple form and we will get to work looking for a down payment assistance program to meet your home buying needs.

If you haven’t written your representative to tell them that you support keeping Nehemiah, AmeriDream and HART available to home buyers, please read this and follow the link to voice your support!

Nehemiah, Ameridream, HART and other private charities that offer seller assisted down payment grants score a win with the introduction of H.R. 6694.

This proposal counters the legislation passed last week that puts an October 1st, 2008 cutoff for seller assisted down payment assistance programs under title II of the National Housing Act (H.R. 3221)

H.R. 6694 calls the authorization of risk based mortgage insurance premiums for certain mortgagors that meet Fico requirements of 620 and above.

I believe this bill will move quickly through the process and be the saving grace of these valuable charities. This is responsible legislation and necessary to continue to stimulate the U.S. Housing market in a responsible way.

For more information, to take action against the ending of Nehemiah and programs like it and to follow the progress of this new legislation you can go to Nehemiah’s website here.

Take Action Now - Use this easy tool to email your representatives and tell them that you want to save Nehemiah!

Dear Mr. Schang:

I am writing in response to your letter regarding down payment assistance programs. Thank you for taking the time to write, and I welcome this opportunity to respond to your concerns.

On July 30, 2008, President Bush signed into law the Housing and Economic Recovery Act. This legislation, which provides critical relief for American homeowners facing foreclosure, also contains a provision prohibiting Federal Housing Administration (FHA) program participants from using down payment assistance programs in which the seller financially benefits from the transaction.

The U.S. Department of Housing and Urban Development (HUD) Inspector General, the Government Accountability Office, and the Internal Revenue Service have cited serious problems with some seller-funded down payment assistance programs that have lead to substantial losses for FHA. The agency had $4.6 billion in unanticipated long-term losses in its annual re-estimate this year, primarily as a result of the increased amount of seller-funded loans in its portfolio. Foreclosure rates for seller-funded down payment assistance loans have been found to be three times higher than other FHA loans.

You may be interested to know that on July 31, 2008, Representative Al Green (D-TX) introduced the “FHA Seller-Financed Down Payment Reform and Risk-Based Pricing Authorization Act of 2008″ (H.R. 6694). The bill would reinstate FHA seller-funded down payment assistance for individuals with certain credit scores. Currently, H.R. 6694 is pending consideration in the House Committee on Financial Services and a Senate companion bill has not been introduced. Given the major concerns of the Senate Banking, Housing, and Urban Affairs Committee with seller-funded down payment assistance programs, it is uncertain if similar legislation will be considered in the Senate. Please know that I will keep your views in mind should the Senate consider this legislation.

Again, thank you for your letter. If I can be of further assistance, please contact my Washington, DC office at (202) 224-3841. Best regards.

Sincerely yours,

Dianne Feinstein
United States Senator

Further information about my position on issues of concern to California and the Nation are available at my website http://feinstein.senate.gov/public/. You can also receive electronic e-mail updates by subscribing to my e-mail list at http://feinstein.senate.gov/public/index.cfm?FuseAction=ENewsletterSignup.Signup.

Important information about Buying a Short Sale - How to make an offer and get it accepted on a Short Sale or Short Pay in California

May 4, 2008 · 1 Comment

It is Important that you Understand what is happening on the other side of a short sale or short pay when you are considering making an offer on a home in this situation.

Read This First - And then come back and finish this article.

Ok, welcome back. I want to give you a perspective on buying short sales and short pays that will give you more control of the transaction. Short Sales and Short pays are becoming more and more common in this real estate market and my best guess is that over 70% of what you are finding when you search for homes are either short pay / short sales or foreclosure / REO homes.

The seller and seller’s real estate agent are an important part of the short sale process. The number one thing i hear from “agents” is that the bank foreclosed on the home without notice. I understand that there are some banks/lenders that are not cooperative and difficult to work with and I also believe that many times that is a self induced “difficulty” due to a lack of understanding of the process.

How much should you offer on a short sale?

April 27, 2008 · No Comments

There are always questions about what to offer when making an offer on a short sale or a foreclosure property.  There is no right answer to this question - you can make any offer you like.  The real question is - Do you really want your offer accepted?

Because Short Sales and Foreclosures are so radically different in how you approach them, we will only address short sales here.  Here is a quick overview of how Short Sales and Foreclosures are different.

Before a short sale offer is considered a value appraisal is completed called a Broker Price Opinion, or BPO.  This is an assessment by a Real Estate Broker as to what the current value of the property is.  A BPO is a “general idea” of the value based on recent sales in the area.  The bank will complete a BPO before considering your offer on a short sale - and before listing an REO or Bank Owned.

What you should know about buying Short Sale Homes in California

April 23, 2008 · 2 Comments

It seems lately that most properties listed for sale are short sales (short pays) or foreclosures.  There is a very big difference between these two types of purchases and how you approach making an offer to buy one of these homes.  Today’s post is about Short Sales - I will follow this up with Foreclosures in the next day or two.

Short Sales (Short Pay) - I have this conversation on a daily basis with potential home buyers looking for a great deal.  Usually it’s a call or an email that goes something like this:

“Can this be true?  There must be something really wrong with this property because this seems like it’s priced way too low”

The old addage that “if it sounds too good to be true, it probably is” is quite relevant in many of these cases.  It’s not that it’s too good to be true, in many cases it’s simply a matter of trying to attract attention to the property.

There’s a whole new opportunity around the short sale phenomenon that beginning to occur much more often.  In all of my other explanations the one thing that is still consistent is the amount of time it is taking the lenders to process a short sale.

The quickest I’ve seen a short sale processed is 60 days, the longest was 6 months!  Let’s now discuss a scenario on an offer submitted on a short sale.  For the purposes of this example, and to introduce the latest opportunity for buying a short sale, we are going to assume that the Agent making the offer has educated the buyer and a fair offer is made of approximately 10%-15% below current market value.

Here’s the scenario and the opportunity -

• An Agent for a buyer makes an offer on a short.  This is an educated and experienced Agent so the offer is realistic and stands a very good chance of being viewed as a win/win for the bank and the buyer.
• The bank, in it’s normal fashion of processing short sale requests takes the next 30 days to register the offer and put it in line to be assigned to a loss mitigation specialist.
• Once the offer is assigned to a loss mitigation specialist, it sits in their work pipeline for another 30 days….60 days have now gone by.
• The buyer has since continued looking at homes with their agent and has made other offers on equivalent homes at similar prices (because they made a realistic offer) and they soon find even better deals on bank owned properties priced to sell.
• The bank finally gets to the short sale offer submitted by our interested buyer over 60 days ago.
• The bank orders a BPO (Broker Price Opinion) to determine the “Market Value” of the home.
• It has now been 90+ days and the bank either approves the offer they have received or makes a counter offer for a sales price that they believe more accurately reflects current market conditions.

I did a search in the city of Riverside for short sales under $300,000.  There are 308 listings….about 26 homes into this list I find my first “Pre-Approved” Short Sale -

• 9505 Arlington Ave - “approved!!! NO WAITING LINE!! JUST SEND AN OFFER $120K GET’S IT”

Awesome!  Lets keep looking and see what kind of deals there are out there……Ok, here we go - after scrolling through another 47 listings we have a winner!

• 3719 Kansas Ave - “Short Sale Approved at $155,000!!!!!  Please call with any questions”

Your Real Estate Agent Needs to Help find pre-approved short sale listings.  You’re saying to your self, that’s pretty good right?  2 Pre-Approved Short Sales out of about 75 ot 100 listings?  over 300 short sales in the city of Riverside?  That’s not a bad selection……But here’s the catch.  This information is not seen by the public.

Many of the 300 listings I found didn’t even mention that the home was a short sale in the remarks that the public can read!  This information is buried in the “Private Remarks” that only Realtors are allowed to read.

Buying Short Sales is still a very hard way to find a deal and more often than not end up not being a “deal” at all.  I am going to stick to my guns and recommend that you work with a Realtor that understands this market and knows how to find you a deal.  More often than not, you will find this “experienced” agent showing you bank owned foreclosure properties.

For more information on buying bank owned properties and short sales, or if you would like a referral of an “experienced” agent to help you find a great deal - feel free to drop me an email or a phone call.

You can reach me anytime on my cell phone at 714-336-8286 or you can reach any of these ways:

Email:  Scott@myporchlight.com

AOL, Yahoo, Skype:  PorchLightScott

Rate Reductions are as follows:

30 Year Fixed

• Moderate Income Areas Reduced .125% to 6.75%
• Low Income Areas Reduced .25% to 6.5%

35 Year interest only PLUS

• Loan Amounts of $450,000 or Less Reduced .125% to 7%
• Loan Amounts in excess of $450,000 Reduced .25% to 7.375%

40 Year Fixed Mortgage

• Reduced .125% to 7%

Extra Credit Teacher Program

• Reduced .25% to 6.25%
• ECTP Down Payment Assitance - 5.25% (interest waived after 3 years)

With the CalHFA Community Stabilization Home Loan Program standing at 5.5% for a 30 Year fixed rate with ZERO down payment required (100% One loan financing with reduced mortgage insurance), CalHFA remains as one of the few remaining reliable and always available first time home buyer programs that allow over 90% loan to value.

Depending on your qualification, CalHFA has loan programs that allow for 0%, 1% & 2% down payment making this a very realistic alternative to the FHA 3.5% down payment requirement (as of October 1st)

For additional information about these CalHFA loan programs feel free to contact me at Scott@myporchlight.com or you may call me on my cell phone anytime at 714-336-8286.

The NAR summary will be identified with a bullet point, my commentary identified as NOTE:

Following is a summary of the key provisions of HR 3221 - The Housing Stimulus Bill of 2008 as reported by the National Association of Realtors® on 7/28/08:

• H.R. 3221, the “Housing and Economic Recovery Act of 2008″, passed the House on July 23rd by a vote of 272-152. On Saturday, July26th, the Senate passed the bill by a vote of 72-13. the President is expected to sign the bill on Tuesday, July 29th. It includes:

NOTE: As of 7/29/08 this bill has not been signed by President Bush. Although there are many things that sound “good” in this 700 page bill, there are many in Washington that are not happy with all the “other stuff” that’s been squeezed in there. President Bush has indicated that he will sign the bill, no word about it being delayed.

GSE Reform - including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. the effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008 )

NOTE: Fannie Mae and Freddie Mac are Government Sponsored Entities (GSEs), they are not government run (yet) like FHA.  Their primary purpose is to purchase mortgage backed securities.  They are currently regulated by the Office of Housing and Enterprise Oversight Committee.  I’m not sure yet what an “independent regulator” would consist of.  Note to self, get more information on that.  Making the conforming loan limit increases permanent is a very interesting prospect.

It seems that with housing prices dropping the way they are that would not be necessary. This does enable Fannie and Freddie to purchase mortgage backed securities that used to be considered “Jumbo”.  This is good news because there is absolutely no secondary market for Jumbo loans now and those banks still offering these loans have rates starting in the high 7% range.

FHA Reform - Including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits ( December 31, 2008 )

NOTE: Permanently increasing the FHA loan limits is a very good move.  The loan limits have been antiquated for quite some time.  This will allow many more people to qualify for FHA financing in states like California.  Not sure what the streamlined processing for condos, reform to the HECM, and reforms to the manufactured housing program will entail.  I will report on that when we find out more.

Program reforms go into effect immediately - loan limits after temporary increase expires at the end of the year.

Home Tax Credit - a $7,500 tax credit that would be available for any qualified purchase between April 8, 2008 and June 30, 2009. the credit is repayable over 15 years (making it, in effect, an interest free loan).

NOTE: This is phenomenal.  I have heard a couple of versions of this so i’m not going to get too excited but this is a powerful program and a great incentive to buy in the next year.  I have heard that it will be broken up over 3 years but there is no mention of that in this summary from NAR.  The $7,500 is not free money, however it is interest free.  It will be paid back over 15 years, i imagine it will just be added to your taxes due on your returns - if i did the math right, that’s about $500 a year….not bad.  Stay tuned for this one - any way you slice it this is a great feature of this bill.

FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

NOTE: Ok, this is a clarification on earlier reports.  The caveat of this program is that lenders are not required to participate in this write down, they must volunteer to forgive loan balances down to current market value, 85% of current market value no less.  I just don’t anticipate this going over well with most lenders and I believe they will be slow to adapt - you can read more about my opinion of this here.

Although it’s not mentioned here, I have also read and reported that the lenders will have to pay a 3% fee to FHA and there will be an upfront mortgage insurance premium to the owner of 1.5% of the loan amount and a monthly mortgage insurance premium of .50.  If this is consistant with FHA loan now, that upfront PMI can be financed into the loan.

Wait a minute now, hold the presses!  FHA is entitled to 50% of future appreciation?  This is the bottom of the market right here folks.  If your home is being re-valued at current market value then you have nowhere to go but up right?  I know reporters are not supposed to interject their personal feelings into a story…so it’s a good think i’m not a reporter…this is something I am going to keep an eye on.  Another question that comes to mind is will the county tax assesors adjust your property tax base to this new value?  It’s time to start asking more questions I think.

Finally, the loan limit of $550,440 nationwide is a good move.  This is going to help a lot of people.

Seller funded downpayment assistance programs - codifies existing FHA propposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.

NOTE: This is unfortunate.  HUD has had it in for Nehemiah, AmeriDream, HART and the sort since last year.  My guess is that these charities will find a way to survive through private funding.  Possibly putting home sellers on a “do solicit” list and hound them until they give?  I don’t know…it’s a guess.

These organizations have helped many families achieve home ownership that otherwise would not have been able to.  This bill simply states that FHA will not allow down payement assistance from someone that is set up to financially benefit from the transaction and the gift.  Fair enough.  These organizations I imagine will continue to operate somewhat in the style of city and state down payment assistance programs and try to acquire funding through government grants and donations.  I’m confident that they will exist in some fashion or other, maybe just not the way they do now.

VA loan limits - temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

NOTE: I don’t quite understand the temporary part of this.  I suspect that it’s a set up for an extension at the end of the year, possibly a grand finale by the Bush administration to help Veterans.  It’s a very good move as far as i’m concerned, even if it is temporary for now.  We don’t do enough for our country’s Veterans as it is.

Risk-based pricing - puts a moratorium on FHA using risk-based pricing for one year. This provision will be effective from October 1, 2008 through September 30, 2009.

NOTE: As part of the expansion of FHASecure, HUD implemented risk based pricing into thier mortage insurance model.  It basically raised mortgage insurance premiums on homebuyers that were on the lowest end of the credit tolerances when being approved for FHA loans.  I see their point, i just don’t know if it’s good for tax payers.  It looks like it’s just a temporary measure to stimulate the housing markets again by the end of 2009.  That, i’m ok with.

GSE Stabilization - includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

NOTE: This is a very positive move by the Treasury Department and will go a long way toward shoring up consumer confidence and stimulating the secondary market.

Mortgage Revenue Bond Authority - authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

NOTE: I do not have enough information to comment on this.

CDBG Funding - Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes

NOTE: Community Development Block Grants.  There are already reports of cities buying up foreclosure homes fixing them up and reselling them.  This is an important move by responsible municipalities to revitalize hard hit communities and help home values recover quicker.  I imagine these monies will be distributed proportionately to those areas of the country that have been hit hardest by foreclosures.

LIHTC - Modernizes the Low Income Housing Tax Credit program to make it more efficient.

NOTE: I do not have enough information to comment on this.

Loan Originator Requirements - Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. the purpose is the prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

NOTE: This is a move that many in the mortgage industry have been in support of.  There is too much inconsistency from State to State in regards to licensing requirements and regulation.  I do not know enough about these new requirements to comment further.  I will do more research and report back.

As we wait for President Bush to sign this bill I’m sure more and more details will come out.  I encourage you to comment and engage in debate about this bill so that we can disseminate details as we get them.

For questions, comments or conversation about H.R. 3221you may call me on my cell phone at 714-336-8286

This bail out basically gives the U.S. Treasury sweeping authority to inject capital into Fannie and Freddie to provide rock solid stability as they see their way through the mounting financial crisis in the mortgage backed securities market. The ceiling on the US national debt has been lifted by $800 billion giving the Treasury almost unlimited resources to prop up these to entities.

The Foreclosure Prevention Act passed earlier this week and expected to be signed by President Bush will guarantee up to $300 billion for new mortgages to help homeowners survive this market with home ownership in tact.

With over 740,000 homes that went into foreclosure in the second quarter of 2008 the country looks to HUD and the FHA as the government steps in to stem the oncoming onslaught of foreclosure that tick away like time bombs. With programs like FHASecure and H.R. 3221 helping to slow the tide of soon to adjust mortages there is still much to be done as this is only the tip of the iceberg.

Stay tuned for more news. President Bush is due to sign the bill tomorrow and then it’s in the lender’s hands to see if they are willing to participate in the principle reduction requirement that is the core of this bill.