On Saturday, the Senate passed the long awaited housing bill (H.R. 3221-Housing and Economic Act of 2008) which supposedly will offer up to $300 billion in home loans for troubled homeowners and establish a rescue plan for the Government Sponsored Enterprises (GSE’s) - Fannie Mae and Freddie Mac. It is expected to be sent to the President immediately and his aides have indicated he will sign it into law even though it’s costs are far above what where originally anticipated.

The legislation is the centerpiece of Washington’s efforts to address the nation’s housing crisis and is one of the most far-reaching housing bills in the last 40 years. The bill has two major objectives, one is to offer affordable (government backed) mortgages to homeowners at risk of going into foreclosure, and the other is to support Fannie Mae and Freddie Mac with a temporary rescue plan and new, tougher regulatory oversight.

The following is a synopsis of the highlights of the new changes included in the legislation:

• The FHA will be allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes’ current appraised value.
• The cost of the new FHA program - which would begin on October 1, 2008 - would be funded by fees from Fannie Mae and Freddie Mac, along with fees paid by both lenders and borrowers.
• Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance. They must also agree to share with the government any profit they realize from selling or refinancing.
• Lenders must agree to pay upfront fees to the FHA equal to 3% of a home’s appraised value.
• Increases to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.
• Permanently increases the “conforming loan” limits cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,500 from the current $417,000.
• The FHA maximum loan limits for “county by county high-cost areas” would also be permanently increased to a maximum of $625,500.
• The current Stimulus Act loan limits will remain in effect until January 1, 2009.
• Includes a tax refund for first-time home buyers worth up to 10% of a home’s purchase price up to a maximum of $7,500. However, the refund serves more as an interest free loan, since it will have to be paid back over 15 years in equal installments.
• Allows tax payers who “do not itemize” on their Federal tax returns to claim a deduction for a portion of their local property taxes - up to a maximum of $500 for individuals and $1,000 for married owners filing jointly - starting this year.
• Bars seller paid down-payment assistance programs for FHA loans.
• Temporarily empowers the Treasury to offer the GSE’s a backstop including provisions that let them (for the next 18 months) offer Fannie Mae and Freddie Mac an unlimited line of credit and the authority to buy stock in the companies, if needed.
• Establishes a stronger regulatory process for the GSE’s. Creates a new regulator (five-year term, appointed by the President, confirmed by the Senate) with oversight authority similar bank regulators including having a greater say in how well funded the two entities will be required to be.
• Creates a permanent affordable housing trust fund to promote affordable housing. The fund would be paid for by fees (4.2 basis points on all new loans) from Fannie Mae and Freddie Mac.
• Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties.
• Requires TILA disclosures to be delivered seven days prior to loan origination, requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms and mandates that the consumer receive early disclosures before paying anything more than a nominal fee that covers the cost of a credit report.
• Encourages state officials to create a national licensing system for residential loan originators, allows HUD to create a licensing system for those states that fail to enact their own, establishes minimum qualifications for all loan originators and requires federal regulators to create a registry for banks and thrift employees who originate loans.

Well, that covers the high points in our opinion. The bill is over 600 pages and there are other changes that will come to light in due time for sure. While we’re positive the bill will help those in Congress and the Senate with their re-election campaigns this fall, we’re not sure how much it will help the overall housing market other than to make sure the GSEs don’t fail. Seems for the most part like it is simply throwing money and new regulations at a problem that will eventually correct itself anyway. And, other than the fact that any government agency charged with the responsibility to oversee $4 billion in buying up foreclosed properties is sure to be ripe pickings for fraud purveyor’s, at least maybe it will help get the banks to start letting go of properties they have been sitting on waiting for this bill for over a year.

As usual, only time will tell the tale…

Update: President Bush signed this bill into law today - Wednesday 7/30/2008

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Tags: FHA, legislature, new laws