Housing Bill Has Key Changes

Okay, so you may or may not have heard that the housing bill passed the house and the senate. The president has said that he will sign the bill into law. So what does this mean? We have gone over some of the details and wanted to present the major changes that will be coming with this new legislation.

Tonight the House and Senate reached agreement on a massive housing bill that affects FHA, Fannie and Freddie, tax policy and many changes involving the housing market. We have previously briefed you by conference call and email on the progress of several separate measures, but the housing and mortgage crisis has caused Congress to combine these provisions into a bill exceeding 400 pages. The House will vote on the measure tomorrow, with the Senate to follow by next week. The White House has supported much of the measure but has criticized some components. Despite a prior veto threat, we expect the President will sign this bill, with final action before the August congressional recess.
Here are the major components:

1. FHA Changes
Mortgage limits for high cost areas will be increased to $625,000 on a permanent basis (115% of the current conforming limit).
The FHA floor will go from 48% to 65% of the current conforming limit. This will put the new permanent floor at $271,000.
Cash downpayment is set at 3.5%.
The seller funded downpayment assistance program (DPA) will be terminated on September 30.
The risk based premium established by HUD last week will be suspended on September 30. The ceiling on upfront premiums will go to 3%.
2. Fannie and Freddie
The conforming loan limit will be increased to 115% of area median up to $625,000.
The bill provides for a federal "backstop" for Fannie and Freddie which allows the Treasury to capitalize the companies by taking an equity stake.
A new regulator with enhanced powers is created.
The bill creates an affordable housing trust fund paid for by assessments on Fannie and Freddie to help prevent foreclosures and facilitate affordable housing
3. FHA Rescue Fund
The bill creates a special FHA refinance program designed to allow the refinance into fixed rate FHA products of up to $300 billion in distressed mortgages.
4. Licensing
Encourages a nation wide licensing and registry system for loan originators by setting minimum qualifications and assigning responsibility to HUD for establishing new rules for those states that do not enact licensing laws.
5. Redevelopment of Foreclosed Properties
Provides $4 billion in funds for local governments to purchase and redevelop foreclosed properties.
6. Tax Incentives
Establishes a range of housing incentives, including a first time homebuyer tax credit and expands the Low Income Housing Tax Credit.

There is a great deal of detail in this complex bill and we will update you as more information is available.

I am not sure how this will affect the Grand Valley, but I don't see anything in this legislation that is going to make people want to rush out and buy a home. There is a $7500 tax credit which will serve as some incentive, but the new FHA down payment of 3.5% will make it more difficult for people to get into homes. If they really wanted to make homes more appealing they should have reduced the minimum down payment for 12 months to 1%. Then move it to a minimum 2% down for the next 12 months. After that it can revert to the standard 3% down payment. This would give first time home buyers a chance to eat up some of this inventory and in 24 months we would be back to a regular 3% down payment which has served FHA well over the years.

We will keep you posted on additional changes as we learn of them.

Kevin Wade
Cherry Creek Mortgage Company
kwade@ccmclending.com
970-243-7800 - Office
970-201-2310 - Cell