In case you hadn't heard the news, President Bush just signed a major housing bill into law. You can read more detailed stories at USA Today and CNN Money .
This law will permit about 400,000 troubled homeowners to refinance into FHA loans. I truly wonder how many will actually take advantage of this opportunity. This part of the law has gotten the biggest hype, but will probably have few people take advantage of it.
Additionally the law makes some significant changes to Fannie Mae, Freddie Mac, and FHA. Here are some of the highlights:
It permanently raises the conforming loan limits of Fannie and Freddie to $625,500 (up from $417,000). It gives up to a $7,500 tax credit for new home buyers. It puts a ban on seller-paid down payment assistance programs (i.e. Nehemiah and Ameridream). It raises the down payment on FHA loans to 3.5% (up from 3%). It gives $4 billion in grants in state and local governments. To me the new law has some positives and some negatives.
Raising the conforming loan amounts for Fannie and Freddie is great for borrowers because it keeps their interest rates lower for these more expensive loans, but aren't Fannie and Freddie already in questionable financial condition?
The $7,500 tax credit is great, but making the tax code even more complex isn't great.
Banning the down payment assistance programs and raising the down payment amounts is actually a good thing for the overall economy long-term. It forces homebuyers to have a reasonable down payment. Many homebuyers in the past were really just renters who somehow stumbled into a loan because of creative dealings by themselves and the other parties and professionals in the transaction. However, this change is bad for buyers, sellers, Realtors, lenders, and anyone in the real estate industry, because now there are that many fewer buyers that will qualify for a loan. If the buyer doesn't have money for a down payment (which is most first time buyers), then they can't buy. Sadly, this may really put a screeching halt to any attempt at a housing recovery we were having. What were Congress and the President thinking???
The $4 billion in grants. Sounds to me like more government fat being spent during an election year.
And that is my take on this new law.
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