The BIG news this week is the passage on Friday of the Emergency Economic Stabilization Act of 2008 - or more formally called "Secure Rural Schools and Community Self-Determination Act of 2000".  Yes, that is how it started and it is known as H.R. 1424.  What it says will change our economic horizon for decades and this article will discuss its major imports for the real estate buyer and seller and homeowners.

The full text of H.R. 1424 is found through this link.  The discussion below includes pertinent parts of the legislation as passed and signed by the President. Note that the President signed the bill based on the speed limit in Washington DC - 35 miles per hour - the time it took to drive it over to the White House from Capitol Hill.  It is important to know that although not discussed in this article, there is almost as much text in the bill directed to energy legislation as to the mortgage bail out provisions.

First here is the nutshell version:

            1.  It establishes TARP - the Troubled Asset Relief Program to purchase and to make and fund commitments to purchase, troubled assets from any financial institution.  Note that this is not limited to troubled residential loans.  The Secretary of the Treasury is supposed to create guidelines that outline the mechanism for purchasing the troubled assets, procedures for selection of asset managers, and create criteria for identifying troubled assets for purchase, all while making sure that no financial institution is "unjustly enriched" or makes a profit from the sale of troubled assets to the TARP program.

            2.  Creates a management mechanism for the management and disposition of the troubled assets purchased by TARP, including the resale of those assets in the marketplace.  All proceeds from the sale of TARP assets shall be paid to the Department of the Treasury general fund for reduction of the public debt.

            3.  Creates Residential Mortgage Loan Servicing Standards to mitigate foreclosure effects.  To the extent the TARP acquires mortgages on residential properties, there is supposed to be implemented a plan that seeks to maximize assistance to distressed homeowners and "encourage" servicers of those mortgages to take advantage of the HOPE for Homeowners Program (discussed in my linked blog) or other available programs to minimize foreclosures and get new financing at a reduced principal amount for the existing homeowner/borrower.  The Act allows flexibility in providing incentives to lenders / servicers guarantees and other enhancements for participating in the program. This incentive portion of the Act is going to be ultra important because otherwise the program essentially is a voluntary program where the government is merely asking the lenders to "please" help the homeowners.

            4.  Gives assistance to residential renters in homes or multi-family properties acquired by foreclosure so that the renter may be able to stay in the home or apartment under the full term of their lease.  This is a very important part of the Act, which has not been discussed, as often the foreclosed house is occupied by a tenant paying rent, who is then forced to leave before the lease is over.  Proviso - the rent must be current.

            5.  Allows the government (as owner of a residential mortgage) to recast an existing mortgage to a lower principal amount (based on present value) and include in the modification term extensions (making the amortization longer), interest rate reductions, and principal write downs.  This is a key point as this one aspect will keep a very large proportion of homes from being lost to foreclosure.  Whether this will be used for investment properties as well as primary residences is something that we will have to watch.

            6.  The expiration of the Mortgage Forgiveness Debt Relief Act of 2007 (and notably the tax relief given to a homeowner that gets a principal reduction of mortgage) is extended to 2013.

            7.  Expands the limit of the public debt of the United States to $11,315,000,000,000, which is a meaningful number to all of us.trillionaires.

Opportunities are Coming:

There are plenty of opportunities for Realtors with their services of property management and property disposition coming down the pike!  Watch the regulations discussed in the Act that are to be written in the next severa weeks to see how this will affect your ability to gain more business.

The Full Text of the Nutshell Version:

I have provided the link to the full bill above.  But for those of you that want information now, below is a cut and paste of the pertinent provisions relating to real estate homeownership.

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SEC. 101. PURCHASES OF TROUBLED ASSETS.

(a) Offices; Authority-

(1) AUTHORITY- The Secretary is authorized to establish the Troubled Asset Relief Program (or `TARP') to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.

(2) COMMENCEMENT OF PROGRAM- Establishment of the policies and procedures and other similar administrative requirements imposed on the Secretary by this Act are not intended to delay the commencement of the TARP.

..........

(d) Program Guidelines- Before the earlier of the end of the 2-business-day period beginning on the date of the first purchase of troubled assets pursuant to the authority under this section or the end of the 45-day period beginning on the date of enactment of this Act, the Secretary shall publish program guidelines, including the following:

 (1) Mechanisms for purchasing troubled assets.

 (2) Methods for pricing and valuing troubled assets.

 (3) Procedures for selecting asset managers.

(4) Criteria for identifying troubled assets for purchase.

 (e) Preventing Unjust Enrichment- In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset. This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code.

SEC. 106. RIGHTS; MANAGEMENT; SALE OF TROUBLED ASSETS; REVENUES AND SALE PROCEEDS.

(a) Exercise of Rights- The Secretary may, at any time, exercise any rights received in connection with troubled assets purchased under this Act.

(b) Management of Troubled Assets- The Secretary shall have authority to manage troubled assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Troubled Assets- The Secretary may, at any time, upon terms and conditions and at a price determined by the Secretary, sell, or enter into securities loans, repurchase transactions, or other financial transactions in regard to, any troubled asset purchased under this Act.

(d) Transfer to Treasury- Revenues of, and proceeds from the sale of troubled assets purchased under this Act, or from the sale, exercise, or surrender of warrants or senior debt instruments acquired under section 113 shall be paid into the general fund of the Treasury for reduction of the public debt.

(e) Application of Sunset to Troubled Assets- The authority of the Secretary to hold any troubled asset purchased under this Act before the termination date in section 120, or to purchase or fund the purchase of a troubled asset under a commitment entered into before the termination date in section 120, is not subject to the provisions of section 120.

 SEC. 109. FORECLOSURE MITIGATION EFFORTS.

 (a) Residential Mortgage Loan Servicing Standards- To the extent that the Secretary acquires mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

 (b) Coordination- The Secretary shall coordinate with the Corporation, the Board (with respect to any mortgage or mortgage-backed securities or pool of securities held, owned, or controlled by or on behalf of a Federal reserve bank, as provided in section 110(a)(1)(C)), the Federal Housing Finance Agency, the Secretary of Housing and Urban Development, and other Federal Government entities that hold troubled assets to attempt to identify opportunities for the acquisition of classes of troubled assets that will improve the ability of the Secretary to improve the loan modification and restructuring process and, where permissible, to permit bona fide tenants who are current on their rent to remain in their homes under the terms of the lease. In the case of a mortgage on a residential rental property, the plan required under this section shall include protecting Federal, State, and local rental subsidies and protections, and ensuring any modification takes into account the need for operating funds to maintain decent and safe conditions at the property.

 (c) Consent to Reasonable Loan Modification Requests- Upon any request arising under existing investment contracts, the Secretary shall consent, where appropriate, and considering net present value to the taxpayer, to reasonable requests for loss mitigation measures, including term extensions, rate reductions, principal write downs, increases in the proportion of loans within a trust or other structure allowed to be modified, or removal of other limitation on modifications.

 SEC. 110. ASSISTANCE TO HOMEOWNERS.

(a) Definitions- As used in this section--

(1) the term `Federal property manager' means--

(A) the Federal Housing Finance Agency, in its capacity as conservator of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation;

(B) the Corporation, with respect to residential mortgage loans and mortgage-backed securities held by any bridge depository institution pursuant to section 11(n) of the Federal Deposit Insurance Act; and

(C) the Board, with respect to any mortgage or mortgage-backed securities or pool of securities held, owned, or controlled by or on behalf of a Federal reserve bank, other than mortgages or securities held, owned, or controlled in connection with open market operations under section 14 of the Federal Reserve Act (12 U.S.C. 353), or as collateral for an advance or discount that is not in default;

(2) the term `consumer' has the same meaning as in section 103 of the Truth in Lending Act (15 U.S.C. 1602);

(3) the term `insured depository institution' has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); and

(4) the term `servicer' has the same meaning as in section 6(i)(2) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)(2)).

(b) Homeowner Assistance by Agencies-

(1) IN GENERAL- To the extent that the Federal property manager holds, owns, or controls mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Federal property manager shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.

(2) MODIFICATIONS- In the case of a residential mortgage loan, modifications made under paragraph (1) may include--

(A) reduction in interest rates;

(B) reduction of loan principal; and

(C) other similar modifications.

(3) TENANT PROTECTIONS- In the case of mortgages on residential rental properties, modifications made under paragraph (1) shall ensure- 

(A) the continuation of any existing Federal, State, and local rental subsidies and protections; and

(B) that modifications take into account the need for operating funds to maintain decent and safe conditions at the property.

(4) TIMING- Each Federal property manager shall develop and begin implementation of the plan required by this subsection not later than 60 days after the date of enactment of this Act.

(5) REPORTS TO CONGRESS- Each Federal property manager shall, 60 days after the date of enactment of this Act and every 30 days thereafter, report to Congress specific information on the number and types of loan modifications made and the number of actual foreclosures occurring during the reporting period in accordance with this section.

(6) CONSULTATION- In developing the plan required by this subsection, the Federal property managers shall consult with one another and, to the extent possible, utilize consistent approaches to implement the requirements of this subsection.

(c) Actions With Respect to Servicers- In any case in which a Federal property manager is not the owner of a residential mortgage loan, but holds an interest in obligations or pools of obligations secured by residential mortgage loans, the Federal property manager shall--

(1) encourage implementation by the loan servicers of loan modifications developed under subsection (b); and 

(2) assist in facilitating any such modifications, to the extent possible.

(d) Limitation- The requirements of this section shall not supersede any other duty or requirement imposed on the Federal property managers under otherwise applicable law.

SEC. 115. GRADUATED AUTHORIZATION TO PURCHASE.

(a) Authority- The authority of the Secretary to purchase troubled assets under this Act shall be limited as follows:

(1) Effective upon the date of enactment of this Act, such authority shall be limited to $250,000,000,000 outstanding at any one time.

(2) If at any time, the President submits to the Congress a written certification that the Secretary needs to exercise the authority under this paragraph, effective upon such submission, such authority shall be limited to $350,000,000,000 outstanding at any one time.

(3) If, at any time after the certification in paragraph (2) has been made, the President transmits to the Congress a written report detailing the plan of the Secretary to exercise the authority under this paragraph, unless there is enacted, within 15 calendar days of such transmission, a joint resolution described in subsection (c), effective upon the expiration of such 15-day period, such authority shall be limited to $700,000,000,000 outstanding at any one time.

(b) Aggregation of Purchase Prices- The amount of troubled assets purchased by the Secretary outstanding at any one time shall be determined for purposes of the dollar amount limitations under subsection (a) by aggregating the purchase prices of all troubled assets held.

SEC. 120. TERMINATION OF AUTHORITY.

(a) Termination- The authorities provided under sections 101(a), excluding section 101(a)(3), and 102 shall terminate on December 31, 2009.

(b) Extension Upon Certification- The Secretary, upon submission of a written certification to Congress, may extend the authority provided under this Act to expire not later than 2 years from the date of enactment of this Act. Such certification shall include a justification of why the extension is necessary to assist American families and stabilize financial markets, as well as the expected cost to the taxpayers for such an extension.

SEC. 122. INCREASE IN STATUTORY LIMIT ON THE PUBLIC DEBT.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting `$11,315,000,000,000'.

SEC. 124. HOPE FOR HOMEOWNERS AMENDMENTS.

Section 257 of the National Housing Act (12 U.S.C. 1715z-23) is amended--

(1) in subsection (e)--

(A) in paragraph (1)(B), by inserting before `a ratio' the following: `, or thereafter is likely to have, due to the terms of the mortgage being reset,';

(B) in paragraph (2)(B), by inserting before the period at the end `(or such higher percentage as the Board determines, in the discretion of the Board)';

(C) in paragraph (4)(A)--

(i) in the first sentence, by inserting after `insured loan' the following: `and any payments made under this paragraph,'; and

(ii) by adding at the end the following: `Such actions may include making payments, which shall be accepted as payment in full of all indebtedness under the eligible mortgage, to any holder of an existing subordinate mortgage, in lieu of any future appreciation payments authorized under subparagraph (B).'; and

(2) in subsection (w), by inserting after `administrative costs' the following: `and payments pursuant to subsection (e)(4)(A)'.

SEC. 136. TEMPORARY INCREASE IN DEPOSIT AND SHARE INSURANCE COVERAGE.

(a) Federal Deposit Insurance Act; Temporary Increase in Deposit Insurance-

(1) INCREASED AMOUNT- Effective only during the period beginning on the date of enactment of this Act and ending on December 31, 2009, section 11(a)(1)(E) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)(E)) shall apply with `$250,000' substituted for `$100,000'.

(2) TEMPORARY INCREASE NOT TO BE CONSIDERED FOR SETTING ASSESSMENTS- The temporary increase in the standard maximum deposit insurance amount made under paragraph (1) shall not be taken into account by the Board of Directors of the Corporation for purposes of setting assessments under section 7(b)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(2)).

(3) BORROWING LIMITS TEMPORARILY LIFTED- During the period beginning on the date of enactment of this Act and ending on December 31, 2009, the Board of Directors of the Corporation may request from the Secretary, and the Secretary shall approve, a loan or loans in an amount or amounts necessary to carry out this subsection, without regard to the limitations on such borrowing under section 14(a) and 15(c) of the Federal Deposit Insurance Act (12 U.S.C. 1824(a), 1825(c)).

(b) Federal Credit Union Act; Temporary Increase in Share Insurance-

(1) INCREASED AMOUNT- Effective only during the period beginning on the date of enactment of this Act and ending on December 31, 2009, section 207(k)(5) of the Federal Credit Union Act (12 U.S.C. 1787(k)(5)) shall apply with `$250,000' substituted for `$100,000'.

SEC. 303. EXTENSION OF EXCLUSION OF INCOME FROM DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.

(a) Extension- Subparagraph (E) of section 108(a)(1) of the Internal Revenue Code of 1986 is amended by striking `January 1, 2010' and inserting `January 1, 2013'.

(b) Effective Date- The amendment made by this section shall apply to discharges of indebtedness occurring on or after January 1, 2010.

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Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com

copyright 2008 - Richard P. Zaretsky, Esq.