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Rescue legislation aimed at helping 400,000 homeowners avoid foreclosure and to prevent troubled Fannie Mae and Freddie Mac from collapsing was passed in the House on July 23, 2008, passed by the Senate on July 26, 2008, and signed by the President on July 30, 2008. The bill is H.R. 3221, the “Housing and Economic Recovery Act of 2008,” and is aimed at assisting homeowners and reversing real estate market trends.
Highlights of the bill include $300 billion to provide more affordable mortgages to troubled homeowners, nearly $4 billion in grants to help communities fix up foreclosed, properties and a $7,500 tax credit for first-time homebuyers that purchase real estate under any qualified purchase between April 9, 2008 and June 30, 2009. The full amount of the credit is only available for individuals with incomes under $75,000 or couples earning less than $150,000 and it will have to be paid back, interest-free, over 15 years.
FHA (Federal Housing Administration) foreclosure rescue refinance, another assistance program, also helps homebuyers with sub-prime loans. Lenders write down qualified mortgages to 85 percent of the current appraised value and qualified borrowers get a new FHA 30-year fixed mortgage at 90 percent of the appraised value. Borrowers will then have to share 50 percent of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. This program goes into effect on October 1, 2008 and lenders’ participation is voluntary.
Another effect of the current housing situation includes changes that cap FHA home loans at $625,500. Down payment on FHA loans will also go up to 3.5 percent from 3 percent. FHA loan limits will not go into effect until after the expiration of the Economic Stimulus limits (December 31, 2008). Additionally, FHA has proposed prohibition of the use of down payment assistance programs funded by those who have a financial interest in the sale; it does not, however, prohibit assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition goes into effect October 1, 2008.
The government’s rescue plan for the worst slumping real estate market since the Great Depression should help the economy somewhat and change market trends by slowing down some of the foreclosure activity around the country and helping the majority of homeowners with sub-prime mortgages. The lenders will get some payoff on loans and avoid foreclosure costs, but have to agree to take a loss on the existing loans.
Although there are many other good components to the bill, it will take a while for the housing industry to fully recover. But the real estate community on the whole has praised the bill. Economists are also seeing the bill as crucial to keeping the housing market in business since the government owns or has guaranteed almost half of $12 trillion in U.S. outstanding mortgage debt. Economists predict that without the help of the GSE Treasury, the real estate market would plunge.
For more highlights of the bill, visit the National Association of Realtors® website at http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions
Sources:
http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080724/REG/647061081
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