Summary of the Housing Rescue Bill

September 14, 2008

Changes in the mortgage markets come, seemingly, minute by minute these days. With the credit fallout from the sub prime mess, lenders, those who are left anyway, have had to really tighten up in lending standards. Big Brother is watching. (and justly so considering the record foreclosures)

The question is: Does this help go far enough or will it make minimal if any difference in the long run? How can it help you? Will it help you? All great questions. Here’s what seems to be the consensus in addition to my viewpoint:

The CEO of Pulte Homes said this bill would add another 2 million buyers into the market nationwide. While I feel that may be a little optimistic, it will bring people into the market that may have been sitting on the fence especially the first time home buyer. The $7500 tax credit could work out very well for most first time home buyers.

The $7500 tax credit is more like an interest free short term loan from the government rather than a one time tax credit as the name implies. The terms of this are very attractive: it is a no interest loan, BUT no payback for 2 years and only at $500 a year after that. Still very attractive even if it’s going to be paid back. Is it enough to truly stimulate a turn around in the market? We’ll know in a year. The offer ends July 1, 2009. For more in depth info on this, click here.

Recent Loan Changes – With the fall of sub prime lending the market has returned ‘prudent, practical, make sense’ mortgages. FHA has made minor revisions compared to conventional financing. Since FHA has been around since the Great Depression it has stood the test of many different market swings. Loans with 3.5% down are still available for people with marginal credit and who can document their income and assets. And it allows 100% gift and non-occupant co-borrowers. It is harder to obtain a loan but this needed to happen.

Foreclosure Help

In addition to increased regulation on the government sponsored enterprises, Freddie Mac and Fannie Mae, the program is authorized to insure up to $300 billion in mortgages and is expected to serve approximately 400,000 homeowners.

The program creates a new, temporary, voluntary program within the FHA to back FHA-insured mortgages to distressed borrowers. The new mortgages offered by FHA-approved lenders will refinance distressed loans at a significant discount for owner-occupants at risk of losing their homes to foreclosure. In exchange, homeowners will share future appreciation with FHA.

Who Qualifies?

Only owner-occupants who can’t afford their mortgage payments are eligible for the program. Investors or investor properties will not qualify. Homeowners must certify that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt to income ratio greater than 31 percent as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.

The Bonus

The size of the new FHA-insured loan will be lesser of the amount the borrower can afford to repay, as determined by the current affordability requirements of FHA; or, 90% of the current value of the home. Loans must be 30-year, fixed rate loans. Borrowers will have 10% equity after the new loan is made.

All in all, this program appears on the surface to be just what it’s billed to be; a housing and homeowner rescue bill. My only question is what will be the long term effects? Only time will tell. Right now, it looks great. Let’s hope for the best.