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New "Housing Rescue Bill", Seller Contributions and the Good News Is...

Most of you have already heard about the "housing/mortgage rescue" law signed into place yesterday, HR Bill 3221.

You can see a list of it's main provisions (distilled from several hundred pages!) below.

Though October 1, 2008 is the date the changes are slated to take effect, the real news is no one quite knows which changes will really happen by then...or which ones will actually be able to be enforced.

One of the rulings of concern for many of you...and for me too...is that seller contributions for down payments are going away (those "no closing costs/no down payment needed" ads!). And the amount required for the down payment for an FHA insured loan has now gone to 3.5%, up from 3%.

However, I heard Nehemiah now has an injunction out against this portion, and who knows how many other Bill changes will be under litigation by October 1st.

Even Freddie Mac hasn't yet gotten any immediate guideline changes and are unsure if it's Home Possible or other DPA Programs will be affected or which new rulings will be ignored or litigated away.

And of course, each lender/bank will jump into the fray and interpret the provisions their own way. This means maybe one particular bank will still allow for a scenario and another bank might not. This law is specific that the lenders, for example in the "short refi's", are not required to participate fully depending on the portion of the provision.

In any case...the good news... the sellers are still allowed to contribute up to....

... 3%-6% (and the % is not yet fully determined...the "old 6%" or now only 3%, etc....but they CAN contribute this!) towards the closing costs including covering the earnest money payment at the closing table...just not the down payment. So on a $160,000 home sale contract/purchase amount, the new buyer would need to bring $5600 from themselves or a family member gift to pay for their down payment. The sellers could pay for all the other associated upfront costs.

I've been fielding questions too about "why would they do this, stop the seller contributions?" and this issue has been in heated discussion now for many months.

Nehemiah contributions have been controversial for quite some time, not just as part of this Bill review. Some lenders consider the whole process "money laundering" while those of us in the trenches see the program allowing more movement of houses between buyers and sellers.

However, two of the main reasons for allowing this provision to stand, and that are meant to have a positive impact, is to shore up the FHA reserves again and to hopefully curb future foreclosure possibilities.

These down payments from buyers are supposed to support the FHA insurance funds to cover homes eventually ending up in foreclosure that the FHA guaranteed to be a more stable loan.

With so many buyers/sellers taking advantage of "no money down" home buying, not only do new homeowners not have a very solid stake of investment in their new home ("gosh, I won't lose much money here if I walk, I didn't even put out $5000, I don't care if I foreclose"... attitudes), no extra money is deposited in the FHA fund itself and the fund is getting depleted from all the losses with foreclosures.

Even with new and slightly higher risk based mortgage insurance premiums, this type of loss is difficult to justify or even support a business as any insurance company would experience. The FHA wants it's money for insurance and the money is staying with the new buyer right now.

So look through the provisions below. As unsettling as all the changes are, I believe many of these will be the intended rescue for many homeowners and a stabilizer of the future.

How the Bill Will Help Homeowners Needing to Refi (from CNNMoney.com)

Bush Signs the Rescue Bill, HR 3221 (from CNNMoney.com)


Key provisions of the law include:

* The HOPE for Homeowners Act: Creates an initiative within the Federal Housing Administration (FHA) to prevent foreclosures for hundreds of thousands of families at no estimated cost to American taxpayers. (see the link above to an article about How the Bill will Help in Refi for details).

* Assistance for Communities Devastated by Foreclosures: To ensure that communities can mitigate the harmful effects of foreclosures, $3.92 billion in supplemental Community Development Block Grant Funds will be provided to communities hardest hit by foreclosures and delinquencies.

* Foreclosure Counseling for Families in Need: To help families avoid foreclosure, the bill provides $180 million in additional funding for housing counseling and legal services for distressed borrowers.

* GSE Reform: Creates a world class regulator for the government-sponsored enterprises (GSEs) so that these vital institutions can safely and soundly carry out their important mission of providing our nation’s families with affordable housing.

* Treasury Emergency Authority: To shore up confidence of the financial markets in Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the legislation contains several temporary provisions requested by the Treasury Secretary including authority for Treasury to purchase common stock and debt securities issued by the GSEs.

* Preserving the American Dream for Our Nation’s Veterans: This bill contains several provisions to help returning soldiers avoid foreclosure, including lengthening the time a lender must wait before starting foreclosure from three months to nine months after a soldier returns from service.

* FHA Modernization: Reforms to modernize, streamline and expand the reach of the FHA, allowing families in all areas of the country to access secure and affordable mortgages through FHA.

* Affordable Housing Fund: A new, permanent fund that will help create more affordable housing for Americans in communities across the country.

* Enhancing Mortgage Disclosure: To ensure that consumers know the exact amounts of their mortgage payments, including the maximum possible payment under the terms of the loan and changes in payments associated with adjustable rate mortgages, lenders will be required to provide borrowers with more timely and meaningful mortgage disclosures on all home purchase loans, loans that refinance a home, and loans that provide a home equity line of credit.

* Standard Property Tax Deduction: To make tax relief available to all American homeowners, the bill will provide a standard deduction – $500 for single filers and $1,000 for joint filers – for the 28.3 million non-itemizers who pay property taxes. Present law allows only those who itemize deductions on their federal tax returns to deduct state and local property taxes from their income.

* Mortgage Revenue Bonds: To provide for refinancing of subprime loans, mortgages for first-time homebuyers and multifamily rental housing, $11 billion of Federal tax-exempt private activity bond authority is included in this bill.

* Credit for First-Time Homebuyers: The bill includes a refundable tax credit that is equivalent to an interest-free loan equal to 10 percent of the purchase of the home (up to $7,500) by first-time homebuyers to help reduce the existing stock of unoccupied housing.

* Increase in low-income housing tax credit: The Low-Income Housing Tax Credit program helps finance the development of rental housing for low-income families. Under current law, there is a state-by-state limit on the annual amount of federal low-income housing tax credits that may be allocated by each state. The bill would increase these limits.

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This page contains a single entry from the blog posted on July 31, 2008 3:33 PM.

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