Mortgage Blog

Housing and Economic Recovery Act HR Bill 3221 becomes law on October 1, 2008.

President Bush signs into law this week the HR Bill 3221 which is going to change our landscape on housing and mortgages. There are a few good things about this law but in my opinion this it will NOT have nearly the impact what the Federal Government thinks it will and quite the opposite is going to occur! They (the Government) do NOT realize that as an industry we have made self corrections and have put into place things that are unprecedented in the mortgage world. It is so much harder to get a deal approved and the checks and balances we have in place today virtually make the paper we are selling so much better and stronger it is off the charts in regard to the quality of mortgage back security - it is better than A+ paper and investors are enjoying that kind of quality more today than they have in years past. Unfortunately, I don't see a sweeping change for the better and see more potential risks than benefits.

Here are the changes:

• Down Payment Assistance goes away on October 1^st, 2008. Become accustom to your local Housing Authority programs because they will survive and be the only options for consumers who have can afford housing but just don't have the available funds for down payment requirements. This can be good and bad but it will eliminate a huge portion of FHA's business and the investors who buy these mortgage backed securities which by the way is EVERYONE will increase prices in other areas from the reduced income/profit that they will see. IE: Interest rates are going Up, Up, Up in the coming months and this time next year I wouldn't be surprised if we see 7-8% rates!!!
• FHA down payment Requirements goes up to 3.5% currently it is 2.85%, just another stab in the back for those who really deserve financing.
• Risk base pricing reform - Lower FICO scores equal higher rates, not a bad thing.
• Renegotiating Mortgages - People who are in foreclosure or about to be can renegotiate their current mortgage into a new loan for 30 years. The original loan had to be originate prior to January 1^st, 2008. The loan must be your primary residence. Vacation homes and investment properties are ineligible. This is a full documentation loan. Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income.  So those with less than 31% housing expense vs their monthly income will not qualify. Lenders, however, are not required to give you a better deal under the new law and may not be willing to negotiate unless they think you are truly on the verge of foreclosure. You cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Here is the kicker, you will have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to give all of the gain. This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.
• Tax Break for first time homeowners -  If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. Here is the deal: if you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.  Guess what? You have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
• Additional Deduction - If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize you can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly.
• Reverse Mortgages -The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower's best interest. The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000. The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage. Finally, the bill raises the maximum amount that people can borrow. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.
• GSE Reform -  Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
• Veterans -  Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
• National Database on Mortgage Brokers. This is a good thing! Mortgage brokers will now be tracked in a national database system which will help detour the unscrupulous people in the industry.