Federal Housing Package

Federal housing package

The sweeping housing measure signed into law Wednesday by President Bush is a boon for all California REALTORS® and their clients, promising to provide increased access for first-time homeowners to mortgage financing, particularly in high-priced areas such as California; tax credits for first-time buyers; and much-needed stabilization of the nations turbulent financial markets.This federal housing package represents a significant move in the right direction for California homeowners, said C.A.R. President William E. Brown. The measure will not only help thousands of borrowers facing financial trouble stay in their homes, but pave the way for thousands more to achieve the dream of becoming first-time homeowners, and help move otherwise skeptical buyers off the fence."The Housing and Economic Recovery Act of 2008, will assist an estimated 400,000 homeowners currently facing foreclosure, many of whom reside in California, by allowing them to refinance their current subprime mortgages with a more affordable Federal Housing Administration (FHA)-backed loan. This particular feature of the bill aims to stem the rising tide of foreclosures that have been driving down home values across the state and creating tougher lending rules that have pushed many potential first-time buyers with good credit off to the sidelines.The bill also will permanently increase FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas something C.A.R. has been pushing for its members for some time. The bill permanently increases the conforming loan limit to $625,500. The Economic Stimulus Act of 2008, signed in February, raised the conforming loan limit in high-cost areas to $729,750 from $417,000. However, this change was temporary and set to expire Dec. 31.Although a permanent loan limit at $729,750 would have been preferable, the new, permanent loan limit of $625,500 will open the door for many California homeowners hoping to refinance their loans into safe, affordable loan products, allow first-time home buyers to get back into the market, and boost business for the Associations member REALTORS® up and down the state.With more buyers able to enter the market, and greater access to affordable loan products that won't have home buyers struggling six months down the road to make their payments, we can expect to see more buyers coming back into the market, Brown said. Increased access to mortgage capital is a key provision of this measure and will significantly improve the options for these first-time buyers here in our state, where home prices remain among the highest in the nation.The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an areas median home price, up to $625,500. The new FHA loan limit will be the greater of $271,050 or 115 percent of an areas median home price, up to $625,500. Both new loan limits will be effective at the expiration of the economic stimulus limits on December 31, 2008.Another key provision of the bill is a tax credit for first-time home buyers, who may now receive a tax refund worth up to 10 percent of a homes purchase price, up to a maximum of $7,500. The refund serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years.Incentives for lowering the cost of buying a home are critical in a market where the affordability rate, or the percentage of households in California that can afford to buy an entry-level home, although showing some strength in the recent months, remains at 44 percent.The measure also allows for the Treasury Dept. to create a federal backstop program to ensure the financial well-being of Government Sponsored Enterprises, specifically, Fannie Mae and Freddie Mac, the nations two largest mortgage lenders.By providing the GSE with a solid regulator, and giving the Treasury the authority to step in and ensure the financial well being of the GSE, this new legislation should restore investor confidence in Fannie and Freddie, allowing them to continue to create programs that make the home-buying process an affordable and viable one for all, Brown said.Other provisions of the measure that C.A.R. supports are:--A temporary increase in mortgage revenue bonds to refinance subprime mortgages.--Temporary raise in the loan limit for the Veterans Affairs home loan guarantee program to the same level as the economic stimulus limits until the end of 2008.--Adjustment to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), allowing sellers to provide the non-foreign affidavit to a qualified closing entity and not just the buyer.--The setting of minimum requirements for mortgage originators, which mandates fingerprinting of loan originators and establishes a nationwide loan originator licensing and registration system. The requirements do not apply to those only performing real estate brokerage activities unless they are compensated by a lender, mortgage broker, or other loan originator. States will have the ability to implement more stringent laws.--The creation of a National Affordable Housing Trust Fund to help cover the cost of the FHA rescue plan for the first five years and develop affordable housing in subsequent years.--The Community Development Block Grant Programs? $4 billion allotment for communities to purchase and refurbish foreclosed homes.

Let's brake this down to what it could be. We won't have final details until the month of Octuber.

FHA refinancing program
A new FHA loan program would be established to help struggling homeowners refinance their mortgage with a new 30-year, fixed-rate FHA loan.

To qualify, the homeowner must:

have an existing mortgage originated before Jan. 1, 2008,
be unable to afford the payments on that mortgage,
have a mortgage debt-to-income ratio of at least 31 percent (or potentially higher),
live in the home and
meet a number of other requirements.
The homeowner’s current lender would have to agree to reduce the amount owed on the existing mortgage to no more than 90 percent of the home’s current market value.

Borrowers who want to apply for this program should first contact their current mortgage servicer and then an FHA-approved lender. Borrowers will have to pay a monthly premium for FHA mortgage insurance, be reasonably able to afford the payments on the new mortgage and share a portion of future appreciation in the value of the home with the FHA.

First-time home buyer tax credit
Home buyers who purchased a home on or after April 9, 2008, or before July 1, 2009, and had not owned a home during the previous three years would be eligible for a federal income tax credit of up to $7,500. The credit would have to be repaid over a 15-year-period and would be phased out for taxpayers whose adjusted gross income exceeds $75,000 (single filers) or $150,000 (joint tax return).

Owners are beginning to flow the Lenders phone lines and getting ready to jump on this opportunity. Home owner most act now in getting there application going and prepare to provide lenders with all documentation needed.


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