You've got to love election year politics as it is the ONLY time when politicians open pander to their constituents over special interest groups. Set to make it through the Senate is the AMERICAN HOUSING RESCUE AND FORECLOSURE PREVENTION ACT OF 2008 (they should have added "for our children") that has a few benefits and quite a few negatives. So who benefits most?
The Benefits For Buyers seems to be the increase FHA loan limits. The House wanted to increase the FHA loan limits to $730,000 while the Senate pushing for a more conservative $625,000. This is great news, not just for states like Maryland, Florida, and California which as fairly expensive real estate but the effect will trickle to relocating sellers who have had trouble selling their higher priced homes. Remember, FHA doesn't lend money, just insures it through MI. However, buyers who have been taking advantage of the decreasing home prices due to foreclosures may find themselves out of luck when looking for a deal. Many of the riskier, high dollar loans were impossible to come by or required more of a downpayment than buyers were willing to pay. FHA's conservative LTV and MI would likely mean fewer foreclosures upon passage.
The bill also features a provision that allows a federal downpayment assistance of up to a $7,500 tax credit. The catch is that the credit will be paid back by the homeowner over a period of 15 years and is only eligible for homeowners making less than $75,000 a year. The average homeowner lives in their house for less than 7 years so those who participated in this program and sells will have an additional suprise at closing - the balance of this credit.
For sellers, their benefit is two fold. First, those facing foreclosure could refi into one of these FHA insured loans however there is a catch that I'm not so sure many would be keen on. Part of the provision states that if you refi into one of these loans and would have been in foreclosure, any profits made upon the sale would be shared with the government. At one time, I was reading as high as 50% of all profits. The bank would have to agree to refinance the homeowners at a payment suitable for the borrower. What has not been said is if this is just interest that is being reduced or principal too.
For borrowers who are actually facing foreclosure due to predatory lending practices, this may provide some relief however it will have no effect on those borrowers who are just walking away from their homes due to falling values and speculators.
The secondary benefit for sellers goes back to the point for the buyers. If borrowers are able to obtain FHA insured mortgages with higher limits, it should help sell more real estate.
It's not perfect. Some members of the House and Senate are lobbying for increased lending for lower-income borrowers which contributed to some of this mess in the first place. The President may veto the bill however the Bush Administration has been working with the Senate Banking Committee to prevent such a veto. I like the increased FHA limits and that's about it. While banks are taking huge loses through the foreclosure process, refinancing the existing mortgages at the same amount as they would receive on a foreclosure sale doesn't seem viable but I guess time will tell.
Jonathan Osman
Charlotte NC Homes, Charlotte Real Estate
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