President Bush on Wednesday signed into law a housing bill that aims to boost the housing market and solidify mortgage finance giants Fannie Mae and Freddie Mac. Click here to read about Fannie & Freddie.
A larger role for the Federal Housing Administration: The FHA will be allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes’ current appraised value.
A permanent increase in “conforming loan” limits: The law will permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,500 from $417,000.
A new home-buyer credit (more like a loan): The new law includes a tax refund for first-time home buyers worth up to 10% of a home’s purchase price but no more than $7,500. BUT this is more like an interest-free loan, since it would have to be paid back. You get 15 years to do so.
A ban on down-payment assistance from sellers: The new law eliminates a program that has allowed sellers to provide down payment assistance for FHA loans. The law would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.
A new affordable housing trust fund: The law establishes a permanent fund to promote affordable housing. The fund will be paid for by fees from Fannie and Freddie.
Grants to states to buy foreclosed properties: The law grants $4 billion to states to buy up and rehabilitate foreclosed properties.
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. Simple math:
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: Stops FHA from using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.
Mortgage Revenue Bond Authority: Authorizes $10 billion in mortgage bonds for refinancing subprime mortgages.
New Loan Originator Requirements: Strengthens the existing mortgage originator licensing and registration system to prevent fraud and will require minimum licensing and education requirements.
