Is there any help for the mortgage crisis?

Housing and Economic Recovery Act of 2008

On July 30, 2008 President Bush signed the Housing and Economic Recovery Act of 2008 into law. This law is intended to modernize and strengthen the regulation of Fannie Mae and Freddie Mac and the Federal Home Loan Banks, the housing Government Sponsored Entities (GSE). It also expands the mission of Fannie Mae and Freddie Mac and creates a new FHA programs designed to help at least 400,000 families save their homes from foreclosure.

Here are some of the highlights of this new legislation:

1. GSE Reform
   This legislation establishes a new “world class” regulator for the housing GSEs. The new regulator will have broad authority making it equivalent to other federal financial regulators to ensure the safe and sound operations of the GSEs.
   
   It also creates permanent conforming loan limits up to $417,000 or 115% of the local median home price, capped at $625,500. These loan limits will not go into affect until after the expiration of the temporary limits established by the Economic Stimulus limits (See FHA Announces New Temporary Loan Limits) on December 31, 2008.
   
   
2. FHA Reform
   The law creates a permanent FHA loan limit of $271,050 or 115% of the local median home price, capped at $625,500. These loan limits will not go into affect until after the expiration of the temporary limits established by the Economic Stimulus limits (See Fannie Mae & Freddie Mac Announce New, Temporary Loan Limits) on December 31, 2008.
   
   Also, the down payment requirement for FHA purchase transactions will increase from 3% to 3.5%. And, there is now a moratorium on risk-based pricing of FHA loans beginning October 1, 2008 for a period of 12 months.
   
   Lastly, seller funded down payment assistance programs such as the Nehemiah Program will be terminated October 1, 2008.
   
   
3. First-Time Homebuyer Tax Credit
   The law establishes an incentive for first-time homebuyers (FTHB) to purchase a home. FTHBs can receive a tax credit up to 10% of the purchase price of a home up to $7,500 subject to certain income limitations ($75K AGI for single and $150,000 AGI for joint). This tax credit must be repaid over a 15 year term at a rate of 6.67% of the tax credit amount. If a home is sold before 15 years the remainder of the tax credit will be recaptured at closing. It is essentially an interest-free loan for 15 years.
   
   
4. Hope for Homeowners Mortgage
   This is a refinance program that will help up to 400,000 families prevent losing their homes to foreclosure. Up to $300 Billion will be allowed for this program. This program is effective October 1, 2008 and ends September 20, 2011 or when the $300 Billion has been reached – whichever occurs first.
   
   To qualify for this program the mortgage must have been originated prior to January 1, 2008 and the borrower’s housing expense ratio (Monthly mortgage payment divided by monthly gross income) must be greater than 31% as of March 1, 2008.
   
   The current lenders would need to be willing to write down any existing mortgages on the property to 85% of the new fair market value (FMV) and the borrowers will get a new 30 year fixed rate mortgage up to 90% of the new FMV of the property. Also, there are limitations on the ability for borrowers to add a second mortgage to the property for the first five years of the new mortgage.
   
   The borrower must also agree to share any equity and appreciation in the property if they sell the or refinance the mortgage within the first 5 years or if they sell the property after 5 years based upon this sliding scale:
   
   
   At first glance, many people would think this is a horrible deal for the borrower. Remember, though, that this program is helping prevent people from losing their homes to foreclosure. If their property is foreclosed, they lose all equity and may still owe money after they lose their home. And, by insuring these loans through the FHA program, the government is taking on risk by guaranteeing mortgage to borrowers who are already behind on their mortgages.
   
   The best strategy, in my opinion, would be to keep the loan for as short a time as possible. As soon as the borrower is in a financially stable position, they should refinance the mortgage to keep any future appreciation for themselves.
   
   For more information about your current loan or financial situation, send me an email or call me at (708) 473-7688.