So, President Bush withdrew his veto threat, and signed the housing bill into law early this morning. Outside of the politics that he is playing with the Democratic controlled Congress (interesting in and of itself), let's review what the bill provides.
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Dear BuildingCredibility.com reader:
I am writing to you from sunny California in the middle of my vacation. The weather is great, there are great bands in town for the state fair in Paso Robles, and the real estate and gas are still very expensive here.
I couldn't wait to get back and blog about the housing bill that was signed. Let's summarize the main changes that happened this morning when President Bush signed the bill into law:
1) Homeowners who cannot afford their payments are now going to be able to refinance into more affordable government backed FHA loans rather than face foreclosure. Borrowers must still be able to qualify under existing FHA underwriting guidelines. If the borrower is upside down (owes more than the home is worth) in the mortgage, the existing lender must agree to take a loss on the refinance. There is no guarantee that the lender will do that. This becomes more complicated if there is a 2nd mortgage.
2) The bill permanently increases to $625K the size of home loans that Fannie Mae and Freddie Mac can buy and FHA can insure. Fannie and Freddie can also buy and back mortgages that are 15% higher than the median home price in certain areas (I don't have any more information on this yet).
3) Lenders must show how high a borrower's payment can get over the life of a loan (worst case scenario) for adjustable rate mortgages.
4) The Treasury Department gains unlimited power (thru 2009) to lend money to Fannie Mae and Freddie Mac or buy their stock to support the companies. The Fed now takes on an oversight role with the companies.
5) Significant expansion of the low-income hosing tax credit, and a credit of up to $7,500 for first-time home buyers for houses purchased between April 9, 2008 and July 1, 2009.
How this shakes out will be interesting...especially with regard to how successful the refinances are. Remember, existing lenders must agree to take losses on refinances of mortgages that some homeowners are upside down in. The decision will be weighed between the cost of foreclosing a homeowner and the loss incurred on the refinance.
Time will tell, and I'm watching it closely, although only in the evenings and mornings, as vacation is calling me!
Warm Regards,