H.R. 3221, the "Housing and Economic Recovery Act of 2008" passed the House on July 23rd, and the senate on Saturday, July 26th. President Bush signed the Bill into Law on Wednesday, July 30th. Here is a quick summary of the main 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). GSE's include Fannie Mae and Freddie Mac.
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 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).
Home Buyer 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 down payment 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 assitance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until Octob er 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 does will be 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 mortage revenue bonds for refinancing subprime mortages.
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 nieghborhood revitalization funds for communities to purchase foreclosed homes.
LIHTC - Modernizes the Low Income Housing Tax Credit program to make it more efficient.
Loan Orignator 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.
For more information, contact Bernie Leibovitch at Bernie@Leibovitch.com
Wall Street Journal Article
July 31, 2008
By DAMIAN PALETTA
WASHINGTON -- President George W. Bush signed a housing-rescue bill into law Wednesday, completing Congress's ambitious legislative effort to head off rising foreclosures and stabilize jittery financial markets.
The law is wide-ranging and could have a big impact on home buyers, lenders and investment banks, and an even bigger effect on housing-finance giants Fannie Mae and Freddie Mac.
The Bush administration is counting on Fannie and Freddie to bolster the housing market by providing funds for the bulk of all home loans. But data released by Fannie on Wednesday underscored the risks both companies face from losses on mortgage defaults. Fannie said payments were 90 days or more overdue in May on 1.30% of the single-family home loans it owns or guarantees, up from 1.22% in April and 0.62% a year earlier.
Heavy losses in recent quarters have limited the companies' ability to buy mortgages. In a recent securities filing, Freddie said it expects its holdings of mortgages to grow about 10% this year. That implies that the holdings will end the year at about $793 billion, up slightly from $792 billion at the end of June. The holdings grew nearly 10% in the first half, but Freddie is likely to slow its purchases in coming months as it tries to build up its capital.
Paul Bishop, economist for the National Association of Realtors, speaks with WSJ's Sudeep Reddy about the implications behind a major housing bill signed into law on Wednesday. (July 30)
The new law creates a new agency, the Federal Housing Finance Agency, with increased powers over Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. It will fold in the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board, and will be led by James Lockhart, who has overseen Ofheo since 2006. Unlike Ofheo, which is part of the Department of Housing and Urban Development, the new agency is independent.
Another major provision of the law would allow the Federal Housing Administration to insure as much as $300 billion in new, refinanced mortgages. The program is supposed to be running by Oct. 1. Democrats have asked lenders to temporarily put off any foreclosures for borrowers who could qualify for the program.
The new regulator will have more control over Fannie Mae and Freddie Mac's capital levels, which Mr. Lockhart in the past has suggested were too low. The regulator also will have more scrutiny over the companies' portfolio levels. The law raises the conforming-loan limit in high-cost areas, which allows Fannie Mae and Freddie Mac to purchase expensive mortgages of as much as $625,000.
One of the law's most controversial elements would more closely tie Fannie Mae and Freddie Mac to the government, at least for the next 18 months. Fannie and Freddie were established by Congress decades ago, but their shares are publicly traded.
Emergency provisions added to the legislation several weeks ago are supposed to quell fears about the firms' ability to weather the housing turmoil. The law allows the Treasury Department to temporarily extend an undefined credit line to Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. Treasury will also be able to buy stock in either company, if necessary. The law also directs the Federal Reserve to consult with the new regulator about capital requirements for both firms.
The House of Representatives passed the law last week, and the Senate passed it Saturday.
This article originally appeared in the Wall Street Journal on July 31, 2008
By DAMIAN PALETTA
--James R. Hagerty contributed to this article.