This is a summary provided by the National Association of Realtors® yesterday ( 7/28/08 ) - under each section I will translate into English because much of this sounds like it was written by lawyers.
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
