Provisions of Housing and Economic Recovery Act 2008

National Association of REALTORS®
Summary of Key Provisions of H.R. 3221 - The Housing Stimulus Bill (as of 7/30/08)



H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:

* GSE Reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
* FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The downpayment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
* Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 8, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).
* FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
* Seller-funded downpayment assistance programs – codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.
* VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.
* Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.
* GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.
* Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.
* National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.
* CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
* LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.
* Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator

Next foreclosure wave sparked by walkaway homeowners?

Some believe housing recovery is still years away
By Tom Kelly, Wednesday, July 23, 2008.

Inman News

Where's the bottom? Are Phoenix, Denver, Sacramento, South Florida and Las Vegas still in a tailspin? Is it time to make a run at a second home you felt you could never afford?

Perhaps we have been too driven and proud of the fact that 70 percent of all families in this country own their homes. In order to get there, lenders, real estate agents and consumers dipped into a "too easy" bucket where the value of ownership sunk to the same level of the cost of getting in the door -- zero.

Sadly, greed became confused with privilege. We are now feeling the results of too much credit being offered to poor or borderline borrowers, overeager investors betting on dreams of continued double-digit appreciation, and impassioned move-ups wanting more housing than they could realistically afford.

The housing specialist first to label and predict a "foreclosure tsunami" for several areas of the country now predicts another round of foreclosures by homeowners who can afford to make their payments yet choose to walk away from their homes. When and if they do in any significant volume, it could lead to a housing meltdown.

"Virtually everyone missed the fact that housing appreciation is far more powerful to keep people paying than the legal consequences of default," said Tom DiMercurio, a veteran of 38 years in the foreclosure business and former president of Fidelity National Asset Management Solutions. "For many folks in different states and different stages in their life, defaulting on their home loan makes economic sense."

DiMercurio was the brains behind BuyBankHomes, a site that provides foreclosure information to interested parties such as consumers, investors and real estate agents. He also started Denver-based The Mercury Alliance, which offers conventional REO sales, management services, plus Internet auctions, and Paradigm Default Services, an operational platform for lenders and real estate brokers.

A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by lenders, a flip-and-run mindset for speculators, and unrealistic expectations for first-time home buyers blinded by the low payments of a short-term loan. While the equity gained by rising home prices can cover many ill-conceived loan mistakes, a flat or sinking market only compounds problems for lenders and owners.

Credit is now tighter and borrowers are being screened and actually scrutinized for the first time in years. Yet, given the developments of the past 15 months, the key to getting a critical flow back into the housing picture may mean revamping the entire once-conservative loan-qualifying process.

"I also believe, that given the size of the growing number of people that have been and are continuing to be foreclosed, there will be no growth in the number of home buyers/borrowers -- unless a foreclosure will be looked upon as a 'late,'" DiMercurio said. "In order to have any kind of loan growth in the future residential market, something less than even subprime credit must be made satisfactory to lenders. And it won't be easily substituted with down payment since values are also in the tank."

Values are not in the tank everywhere, but homes certainly are not rising quickly in value and they are taking longer to sell. Multiple listing service figures that show a drop in new listings must be filtered with the number of would-be sellers not wanting to compete in a slow or flat market.

Some sellers, especially those in some select second-home markets, continue to believe that they are in the driver's seat. A recent offer on a $739,000 home with three bedrooms and two baths in 1,440 square feet near Lake Tahoe did not even draw a counter from the seller when a potential buyer offered $669,000.

The buyer did his homework and made what he felt to be a generous offer. In seven sales in the immediate area from May 2007 through March 2008, the highest paid was $453 per square foot and the lowest price was approximately $370 per square foot. The buyer truly wanted the home and offered more than the highest price per square foot.

All real estate is regional. Blips and dips in one neighborhood can resemble a flat line just a few blocks away. But a return to a national "feel good" housing atmosphere likely is years away, not months. The components are varied and complex and certainly will not be sorted out this year. How is that even possible anyway when some people believe defaulting on your home loan makes economic sense?

Understanding What Causes Interest Rate Movement

The Federal Reserve and Mortgage Rates

Understanding What Causes Interest Rate Movement



Consumers are often misled when it comes to the subject of the Federal Reserve and how it affects mortgage interest rates. Often the media is the culprit causing the confusion. In the last few years, the Fed has taken action that caused mortgage interest rates to move in a direction other than what consumers expected, because the media provided weak reporting on the subject.

The Federal Reserve affects short-term interest rate maturities, the Fed Funds rate, and the Overnight Lending rate. These factors have a direct impact on the Prime rate. If you took only this into consideration, you may mistakenly conclude that changes made by the Fed will cause a similar movement in mortgage interest rates. However, mortgage interest rates are dictated by the trading of mortgage-backed securities, which trade on a daily basis. The real dynamic at the heart of interest rate movement is the relationship between stocks and bonds.

Stocks and bonds compete for the same investment dollar on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling of mortgage-backed securities.

Unfortunately, selling mortgage-backed securities to fuel stock market rallies causes interest rates to go up, not down.

Historically, there have been many times when the Federal Reserve has increased interest rates. Stocks then sell off in fear that the increase will affect corporate profit margins, and the liquidated stock assets need a place to park until the next rally comes along. The safe haven is found in mortgage-backed securities which cause mortgage rates to drop.