This my friends, is by definition, an Oxymoron.

Although I beleive there is a place for government regulation in the Mortgage Industry, all to often they create feel good legislation that causes more problems than it's intended to solve. The biggest problem being politicians are so consumed with being able to say that they took on an issue and got SOMETHING done that ultimately what is produced is a mangled conglomeration of verbage that usually does more harm than good and is not a thouroughly thought out, concise, piece of legislation that's able to be clearly comprehended by the masses it regulates or governs. I cite the "Housing and Economic Recovery Act of 2008’’ 694 pages of legislative bliss. Which as of this morning, July 30th, 2008, has been signed into law by the President and is to take effect October 1, 2008.

A great site I use for tracking various Mortgage and Real Estate Legislation / Bills is GovTrack

Some parts of the Bill are good, but I have issues with other parts. I have serious concerns about the Section 257 of the legislation "Hope for HomeOwners Program". In a nutshell if you receive a loan under these guidelines the Government (FHA /HUD) becomes your Equity Partner. It breaks down as follows if you Refinance or Sell the property.

FIVE-YEAR PHASE-IN FOR EQUITY AS A RESULT OF SALE OR REFINANCING.—

For each eligible mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which such mortgage relates, or upon the subsequent refinancing of such mortgage, be entitled to the following with respect to any equity created as a direct result of such sale or refinancing:

‘(A) If such sale or refinancing occurs during the period that begins on the date that such mortgage is insured and ends 1 year after such date of insurance, the Secretary shall be entitled to 100 percent of such equity.

‘(B) If such sale or refinancing occurs during the period that begins 1 year after such date of insurance and ends 2 years after such date of insurance, the Secretary shall be entitled to 90 percent of such equity and the mortgagor shall be entitled to 10 percent of such equity.

‘(C) If such sale or refinancing occurs during the period that begins 2 years after such date of insurance and ends 3 years after such date of insurance, the Secretary shall be entitled to 80 percent of such equity and the mortgagor shall be entitled to 20 percent of such equity.

‘(D) If such sale or refinancing occurs during the period that begins 3 years after such date of insurance and ends 4 years after such date of insurance, the Secretary shall be entitled to 70 percent of such equity and the mortgagor shall be entitled to 30 percent of such equity.

‘(E) If such sale or refinancing occurs during the period that begins 4 years after such date of insurance and ends 5 years after such date of insurance, the Secretary shall be entitled to 60 percent of such equity and the mortgagor shall be entitled to 40 percent of such equity.

‘(F) If such sale or refinancing occurs during any period that begins 5 years after such date of insurance, the Secretary shall be entitled to 50 percent of such equity and the mortgagor shall be entitled to 50 percent of such equity.

APPRECIATION IN VALUE.—For each eligible mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which such mortgage relates, each be entitled to 50 percent of any appreciation in value of the appraised value of such property that has occurred since the date that such mortgage was insured under this section.

ALL this in addition to an UFMIP of 3% plus a monthly MI calculated at 1.5%

This entire piece would qualify as Predatory by any means if implemented by a Lender / Investor as a portfolio product. Ring the numbers out on a $200K deal that is sold 12 years into this NEW Mortgage with an assumed $90K increase in value over that time. The Government get's nearly $101K total when adding together the UFMIP, the Monthly MI, and the EQUITY (Stripping) SHARING. AMAZING

Something else you should know about this Laws effects on FHA Mortgage Insurance.The changes implemented in Mortgagee Letter ML 2008-16, dated June 11th, 2008, that went into effect on July 14th, 2008, will have a 1 year moratorium imposed on them starting on October 1st, 2008.

This Law also eliminates the use of Down Payment Assistance programs that assist borrowers to obtain a home. I feel this rabbit hole goes much deeper than FHA would have us believe. The last time they were in court over this their arguement was blown apart resulting in a loss for them and a Victory for the DPA's. The problem with their arguement is that it's just to easy to say DPA's in and of themselves are causing a disproportionate amount of Defaults / Foreclosures. Especially when they FHA was trying to hash outl plans for their OWN 100% mortgage product. I think a comprehensive THIRD Party audit / investigation should be done that really analyzes the cause(s) of the foreclosures FHA currently relies on for their arguement. I'm talking income, assets, occupation, local economy, evaluate local inflationary problems such as ever increasing energy costs, plant shut downs, natural disasters etc...My feeling is they would find out that just as now, the type of mortgage one receives isn't necessarily the only defining factor pushing people into foreclosure.

I also fear that this will have severe negative consequenses for the Housing Industry do to the fact that DPA's were used by a fairly large amount of Home Purchasers, estimates I've heard are as high as 30%, to assist them with getting into a home. With continuosly increasing lending restrictions and an ever tightening Credit Market this will further disqualify good , hardworking, honest people that want to live the AMERICAN DREAM of Homeownership.

They have also increased the minimum Cash Investment required by the borrower(s) to 3.5% of the Appraised Value, not a huge increase, but an increase none the less.

So in conclusion, I'm not overly impressed with this law by any means based on what I've discussed. Not to mention the astronomical spending associated with it.