The local and national impacts of the new Housing Bill are significant and long term. The provisions of the bill will take some time to sort through. The bill was approved by the House earlier last week and by the Senate yesterday, after the President indicated on Thursday that he would sign the bill.

The circumstances of recent mortgage and financial market crisis events forced quick passage of some response, and this bill was already in place.

The Housing Bill brings many changes to the national and local real estate markets. The headline changes focus on foreclosure relief, Fannie Mae and Freddie Mac support and regulatory changes for both agencies.

This bill has several lesser publicized features. Many of which I probably have not been able to find amid all the news reports.

Some of the lesser known provisions include these changes to FHA lending:

Banning seller funded downpayment assistance (DPA). These are transactions in which the buyer uses grant funds from an IRS approved charitable foundation. The seller then reimburses the charitable foundation and pays the foundation a processing fee.

Problems with this program are mainly from higher loan delinquency with loans that include such downpayment plans. Additionally, it is perceived that the programs generally inflated the price of the homes and amounted to money laudering, according to many critics. I actually like the programs, myself.

Loans using DPA made up around 30% of FHA's total loan volume. These loans had 10% delinquency compared to 6% delinquency for non DPA loans.

This will have a significant impact on qualified buyers.

Increasing FHA minimum downpayment to 3.5%. I am not sure of the reason for increasing the minimum investment by.5% ? Now without the availability of DPA, home buyers will need to save another $500 for every $100,000 purchase amount.

This is still a relatively low down payment, but many people will struggle with this. I expect it to be a major impediment to home ownership.

This may be viewed as ensuring home buyers are more qualified. My opinion is that it will mean fewer home buyers at a time when home sales are already dropping.

FHA risked based premiums are held off for 1 year. These new premiums went into effect on July 14. I guess the risked based premiums will be in effect until October 1, when the newly enacted provisions of the Housing Bill are scheduled to go into effect.

There are many other provisions of the Housing Bill that will have significant and long term impact. As is stands now, there are probably more questions than answers as to what the impact will be. It will be iinteresting to see how the downpayment assistance companies respond.

FHA Reverse Mortgage (HECM) loan limits to be increased to the conventional loan limit for a single family residence.

More to come.

If any of these points are incorrect, please post a comment. This is how I understand these FHA changes, as described in several sources.

Some more specific provisions of the bill are outlined here from Reuters News.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
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rsmith@aamonline.com

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