| The Housing bill signed by the President on July 30, 2008, does not eliminate all downpayment assistance programs from eligibility for FHA insurance. Only those programs that are funded directly from the seller or other party to the transaction are prohibited. Downpayment assistance from family members, government programs, or charities that are not seller-funded is still permitted. The prohibition goes into effect October 1, 2008. |
Under the new housing bill, home buyers who have not owned a home in the last three years will be eligible for a tax credit equal to 10 percent of the property up to a maximum of $7,500. Here’s how it works: - The credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.
- This program is actually a loan, which home buyers must repay over 15 years at zero percent interest beginning in the second year after they purchase the home. A home buyer who qualified for the whole credit would pay $500 for 15 years or about $41.67 per month.
- The credit applies only to homes purchased on or after April 9, 2008, and before July 1, 2009.
- High-income home buyers don’t qualify: Eligibility begins phasing out for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles and $170,000 for married couples filing jointly.
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HR 3221, the Housing and Economic Recovery Act of 2008
National Association of REALTORS® Summary
(as of 7/24/08)
H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23rd by a vote of 272-152. The Senate must now approve the language adopted by the House. The Senate is expected to approve the bill on Friday, July 25th or Saturday, July 26th. The President has said he will sign the bill. It includes:
· 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).
· 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).
· Homebuyer Tax Credit - a $7500 tax credit that would be 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).
· 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.
· Seller-funded downpayment assistance programs – codifies existing FHA proposal 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.
· 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.
· Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision does will be effective from October 1, 2008 through September 30, 2009.
· 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.
· Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.
· National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.
· CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
· LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.
· 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 to 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.
Housing Rescue Package Will Have Global Impact
RISMEDIA, July 28, 2008-A full one year after the credit crisis began, Congress is in the final stages of approving HR 3221, the most comprehensive mortgage and housing legislation in decades. “This will have an enormous impact in the U.S. housing and mortgage markets, as well as every major financial market all across the world,” said Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.
Impact on US Housing and Mortgage Markets- Licensing of all mortgage originators - “The great thing about this legislation, compared to other proposals that came before it, is that both bankers and brokers will be required to adhere to the same standards,” said Nicholas. The legislation calls for background checks, testing, registration in a national database and annual continuing education requirements for all individual bankers and brokers.
- Stabilization of Fannie Mae and Freddie Mac - The new legislation empowers the government to provide funding to Fannie and Freddie if they are unable to raise funds on the open market, effectively guaranteeing their survival and ability to fund loans. Without this legislation, home prices could have collapsed even further due to the lack of funding options for buyers in the marketplace. “This is great news for home buyers and sellers because it eliminates the risk that home buyers will suddenly find themselves out of financing options,” said Nicholas. Approx. 68% of all new mortgages originated in 2008 were purchased by Fannie Mae and Freddie Mac. Additionally, the legislation extends higher loan limits in high cost areas indefinitely, albeit with maximum loan sizes of $625,500 compared to the current limit of $729,750 that is set to expire at the end of 2008.
- Loan Modifications - Mortgage servicers are given new authorities and legal protections to modify the loans they service. Over 60% of US home mortgages are securitized. This means that the company collecting your payment (known as the mortgage servicer) doesn’t really own the mortgage note - it is owned by a group of Wall Street investors. “Prior to this legislation, mortgage servicers lacked authority and faced enormous legal liability from their Wall Street investors whenever they modified a mortgage,” said Nicholas. Under the new law, servicers are protected from liability so long as they take steps to ensure that the modified loan terms will net their investors the same or better result than requiring the borrower to go all the way through the foreclosure process. “This should help more borrowers keep their homes through the loan modification process as opposed to forcing them to lose their homes and asking the housing market to absorb another foreclosure sale,” Nicholas said.
Impact on US and International Financial Markets
Investors in the stocks and bonds of Fannie and Freddie can breathe a sigh of relief, and the financial markets have averted another cataclysmic crisis - for now. Due to the enormous size of the market for Fannie and Freddie bonds, any major downgrade in their value and credit rating has the potential to cause enormous upheaval in financial markets across the world. “Every time the value of their investments fall, financial institutions need to raise more money to maintain their minimum capital requirements,” said Nicholas. “This pressure to raise funds and meet capital requirements creates a downward spiral in prices forcing financial institutions to continually sell even more assets into an already depressed market,” said Nicholas. “A bad situation quickly becomes even worse. This is exactly what has been happening among financial institutions since the credit crisis began in July 2007.”
Impact on Inflation, the US Dollar and Government Debt
While the short term impact of the legislation is a very positive development, what happens if it doesn’t work as planned? If home prices continue to decline, the government will likely be forced to spend taxpayer funds to shore up Fannie and Freddie and/or absorb the losses from the expanded FHA loan programs. The Fed may be forced to print US dollars to finance these losses and government expenditures. This would result in inflationary pressures that devalue the US dollar. Further, the legislation does not have any plan in place to break up Fannie and Freddie and completely eliminate their government ties. This means that these two financial institutions will retain their privileged status as “too big to fail” which could require another government bail-out at some point in the future