The new Housing Reform Bill, expected to be approved by the U.S. Senate as early as Saturday ( July 26 ) and then immediately signed into law by President Bush, is indeed a mixed bag of news for current and potential home owners in the United States.

This sweeping piece of legislation, expected to go in effect on October 1, will help current home owners refinance to more stable and reliable FHA insured loans through cooperation between the current lender, the government, and the home owner.

With a blank check from the U.S. Treasury to Fannie Mae and Freddie Mac allowing both entities to buy loans in the secondary market with a raised limit to $625,000 rather than the current $417,000,, this should ease credit restrictions and hopefully lower interest rates for all loans across the board from $0-$625,000.

I want to pause here for a second, as there is often some confusion about the exact role of Fannie Mae and Freddie Mac. Most people watching the news just know they exist and something is going on with them that is putting this country in a downward spiral, but do not know much beyond that. It’s what the news does. You might not know why to panic, but go ahead…panic. (Sorry for the brief Soap Box moment)

To try to put this in the most basic terms, we have to understand the life of a home loan. When potential home buyers go to their bank or local lender to get a home loan (such as a Countrywide, Wells Fargo, WaMu, etc.) the bank “originates” the loan and lends the money to the home buyer. These banks have a limited amount of funds, so they sell the loans to entities like Fannie Mae and Freddie Mac to free up the cash again so the individual banks can originate more loans with other home buyers.

Fannie Mae and Freddie Mac are currently limited to buying loans at $417,000 or less. When a home loan is needed above $417,000 it is considered a “jumbo loan” because the options for lenders to sell this loan in the secondary market (Fannie and Freddie) are limited. Because this money is more likely to be tied up, lenders have been charging much higher interest rates as well as greatly tightening qualification restrictions. With the new legislation allowing Fannie and Freddie to buy loans up to $625,000, this will help a range in the market that has suffered greatly throughout the U.S., and especially here in the Las Vegas / Henderson, NV area.

The increased purchasing power of Fannie and Freddie should allow lenders to be able to sell more loans in the secondary market, thus ease restrictions and hopefully lower interest rates to encourage more buyers to go after their dream of home ownership once again.

The big concern among Real Estate Professionals, however, with this new legislation, is the elimination of Down Payment Assistance programs such as Nehemiah and AmeriDream for FHA Loans. Not only will the Down Payment Assistance programs be eliminated, but the FHA minimum down payment will be raised from the current 3% to 3.5%. This will eliminate many qualified first time home buyers already strapped for cash with $4.00+ gasoline and the ever increasing food prices.

This is a significant loss, and only time will tell how this will affect potential home buyers. The good news is that the ban will not go into effect until October 1, so there is still time to take advantage of this tremendous opportunity for those home buyers without the thousands of dollars saved up for a down payment.

Please contact me at 702-370-3521 or e-mail me at Mike@PrimeRealEstateLasVegas.com to see how this soon to be law will affect your unique situation.

Mike Dobranski, REALTOR®
Prudential Americana Group, REALTORS
Las Vegas / Henderson, NV

Phone: 702-370-3521
E-Mail: Mike@PrimeRealEstateLasVegas.com
Web: http://www.PrimeRealEstateLasVegas.com