After several months of negotiations and veto threats by the White House, HR 3221, the "Housing and Economic Recovery Act of 2008" passed Congress and signed by the President last week. The nearly 700-page final bill combined a number of measures to modernize and reform the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, and the Federal Housing Administration (FHA). The bill will assist at-risk homebuyers and stabilize the mortgage market.
Key measures include:
- Permanently increase the cap on GSEs (conforming loans) to $625,000 from $417,000
- Increase FHA loan limits in high-cost areas to $625,500 from $362,790
- Allow the FHA to insure up to $300 billion in 30-year fixed rate loans to help refinance at-risk home owners
- Imposes a 12-month moratorium on the newly released "risk-based" mortgage insurance pricing on FHA loans
- Bar seller funded down-payment assistance programs on FHA loans and increase the down payment requirement from 3% to 3.5%
- Create a "tax refund" of 10% of a home's purchase price (up to a $7,500) to many first-time homebuyers
- Authority for the Department of Treasury to provide funds to aid the GSEs over the next 18 months if it becomes necessary
- Give states $4 billion in grants to buy and rehab foreclosed properties
- Establish a nationwide loan originator licensing and registration system
The new FHA refinance program will help at-risk borrowers in owner-occupied homes refinance into affordable, fixed-rate loans. The current lender must write down the loan balance to 90% of the homes' current value and pay upfront fees to the FHA of 3% of the homes' value. The borrowers must also pay an annual premium to the FHA equal to 1.5% of their new loan balance and to share with the FHA any profit they gain from selling or refinancing. It is estimated that this provision will help ~325,000 borrowers to avoid foreclosure and remain in their homes.
The ban on seller-funded DPA programs (which we will cover in detail at another time) is the result of studies showing an increased incidence of foreclosure in those mortgages. In fact, the FHA claims that a main reason that their reserve fund has fallen is from the improper use of seller-funded DPA program. The FHA in recent years had tried to implement risk-based pricing (charging higher mortgage insurance premiums for lower credit scores and down payment) and to eliminate the DPA program. Both have met with resistance, but it appears that seller-funded DPA programs will now be banned, while the recently imposed (July 14th) risk-based premiums will be suspended for another year.
Possibly the most controversial provision will allow the Treasury Dept. to provide liquidity to Fannie Mae and Freddie Mac if necessary. This is hoped will reestablish confidence in the GSEs and halt the steep declines in the government supervised but privately owned corporations stock prices. Combined, the GSEs own or back $5.2 trillion in mortgages and are vital to the mortgage industry. The bill allows the Treasury to offer them an unlimited line of credit and to buy their stock during the next 18 months.
One part of the bill receiving little mention in the media but crucial for consumer protection is the new all originator registry. Currently mortgage brokers in many states are required to obtain licensing, with mandated education, testing and background/credit checks. However loan officers at banks, credit unions and direct lenders are not licensed or required to meet these standards. The national system will ensure all mortgage originators are properly trained and screened and provide protection from unethical and criminal participants entering the mortgage industry. Our branch and company supports increased standards to make sure that our customers receive the level of service and value they deserve.
You can read more details and commentary on CNN Money.
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Roland Carrillo, PhD
Branch Manager
VanDyk Mortgage in Cary, NC
Email: rjcarrillo@gmail.com
Website: http://www.mymortgageanalysis.com/
Our branch specializes in affordable lending options including FHA / VA and the Community Heros program. As both a banker and a broker, you have access to a full menu of products including all Fannie Mae and Freddie Mac Conforming loans, Reverse, Jumbo and Commercial financing on a variety of property types. We are located in Cary, North Carolina and are within easy reach of the entire RTP Area including Wake, Durham and Orange Counties.
are you optimisitic that there will be a reversal of the outright ban on Down payment assistance programs?/
I wouldn't place bets either way. HUD has been trying to eliminate this program for a while and has several studies showing that the use of seller-funded DPA (which is the one being eliminated) corresponds with an increased chance of foreclosure. Whether these studies prove causation is not as clear, but there seems to be a link.
However the DPA "non-profits" have a huge interest in fighting this and have been sucessful before. It is also a nice media clip to say you are supporting this bill to help poor homeowners qualify for affordable financing in this time of need. 1 minute media stories don't have time to explain the pros/cons and issues... and politics is about emotion as much as reason.