H.R. 3221 passedThe long awaited housing bill passed and is awaiting a signature from President Bush who is expected to sign the bill Tuesday July 29, 2008. Below I will break down each part of the bill and explain what this actually means. There are a lot of items addressed in the bill and it is important to understand how this will help and hinder in each case.
GSE Reform:GSE is "Government Sponsored Enterprise" (or entity), otherwise known as Fannie M
ae and Freddie Mac.
GSE reform will include a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median price, capped at $625,000. The effective date for reforms is immediate upon enactment, except loan limits which go into
effect December 31, 2008 after the expiration of the economic stimulus limits.
This
permanently increases the conforming loan limit. This will allow more people to get into homes without entering the "Jumbo"
category and paying a higher interest rate.
FHA Reform:FHA reform will include permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price
capped at $625,500. FHA reform also
includes streamline processing for condos. The effective date for the reform is immediate upon enactment, and the loan limits go into effect at the expiration of the economic stimulus.
This is a big win for all as FHA is quickly becoming the financing type of choice, and this will increase the loan limits for this type of financing.
Home buyer Tax Credit:As I have recently blogged about, a $7500 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. For more information on this topic please see my blog titled
"Home Buying Tax Advantages".
This is an incredible incentive for first time home buyers when used properly and can be a great financial tool.
FHA Foreclosure Rescue:A refinance program for
home buyers with problematic
sub prime 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. There are some important time limits on this and it is a rather lengthy topic I will be blogging about
separate this week.
This will help stop the stream of
foreclosures and keep people from walking away from their sub prime mortgages.
Seller-Funded Downpayment Assistance Programs:This portion codifies existing FHA
proposal to prohibit the use of
down payment assistance programs funded by those who have a financial interest in the sale. This prohibition does not go into effect until October 1, 2008. If you are looking to buy a home and need the seller to pay your 3%
down payment, I would
recommend you do so now!
Seller funded
down payment works like this; FHA says that your
down payment of 3% can come from a non-profit organization. For years the work around has been non-profit organizations set up to assist in this process. The seller would agree to contribute 3% to a non-profit such as Nehemiah and in turn the non-profit would pay your
down payment minus a fee for the service. According to the bill a non-profit can still pay your
down payment however it can no longer be funded by anyone with a financial interest in the property i.e. the seller.
This means buyers are going to have to have some skin in the game. The seller can still pay your closing costs in many cases but the buyer will be responsible for
bringing in the 3% for their
down payment.
Believe it or not this is actually a good thing for our market.
Studies have shown that the less money someone brings in on a home the more likely they are to default.
VA Loan Limits:This is a temporary increase of VA loan
limits to be the same as the economic stimulus limits through December 31, 2008. If
you are going to get a VA loan and you want to be able to go up to a higher loan amount you have until the rest of the year to do so.
GSE Stabilization:
This allows 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.
The last few weeks the stability of both Freddie Mac and Fannie Mae have driven the markets down. This information confirms the continued stability and support for these organizations.
Mortgage Revenue Bond Authority:Authorizes $10 billion in mortgage revenue bonds for refinancing
sub prime mortgages.
National Affordable Housing Trust Fund:Develops a trust fund funded by a percentage of profits from the
GSEs. In it's first years the fund would cover the costs of any defaulted loans in FHA
foreclosure program. In out years the trust fund would be used for
developments 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 licencing and education requirements. The bill exempts those who only perform real estate brokerage
activities and are
licensed or registered by a state.
In Conclusion:This is simply an outline of the bill and I will be tackling each item individually through out the week to further explain the effect this bill will have on an item by item basis. This was a much needed bill for the nations real estate market and will help to get things back on track.
If you are thinking of buying a home this year and would like to know how this bill will affect you please contact me as soon as possible to discuss your situation.