New Higher Loan Limits - Are the loan limits that were lowered at the end of 2008 going to be raised again?

In a news conference today, January 9th, Barney Frank announced that house democrats have agreed with President-elect Barack Obama that the loan limits for loans purchased by Fannie Mae and Freddie Mac need to be raised back to the $729,750 in high cost areas. The proposal would also increase the loan limits on Federal Housing Administration insured loans. "Keeping the loan limits at last year's levels this year so we can then think about what we do going forward will be in the economic recovery program for FHA, Fannie Mae and Freddie Mac," Frank said.

Barney Frank also released proposals to amend the Troubled Assets Relief Program (TARP)  legislation  passed last year. Proposals in this legislation which is expect to be introduced next week include:

FORECLOSURE RELIEF

TARP Foreclosure Mitigation Plan  - Use of the second $350 billion is conditioned on the use of a minimum of $[50] billion for foreclosure mitigation, with plan required by March 15, 2009.  By that date, the Secretary shall develop (subject to TARP Board approval) a comprehensive plan to prevent and mitigate foreclosures on residential mortgages.  The Secretary shall begin committing TARP funds to implement the plan no later than April 1, 2009.

Required Elements of Plan  - The foreclosure mitigation plans must apply only to owner-occupied residences and shall leverage private capital to the maximum extent possible consistent with maximizing prevention of foreclosures.  Treasury must use some combination of the following program alternatives:

1) guarantee program for qualifying loan modifications under a systematic plan, which may be delegated to the FDIC or other contractor

2) bringing costs of Hope for Homeowner loans down (beyond mandatory changes in Title V below), either through coverage of fees, purchasing H4H mortgages to ensure affordable rates, or both

3) program for loans to pay down second lien mortgages that are impeding a loan modification subject to any write-down by existing lender Treasury may require

4) Servicer incentives/assistance - payments to servicers in connection with implementation of  qualifying loan modifications

5) Purchase of whole loans for the purpose of modifying or refinancing the loans (with authorization to delegate to FDIC)

HOPE FOR HOMEOWNERS IMPROVEMENTS

Eliminates 3% upfront premium

Reduces 1.5% annual premium to a range between .55% and .75%, based on risk-based pricing (also makes technical fix to permit discontinuation of fees when loan balance drops below certain levels, consistent with normal FHA policy)

Raises maximum loan to value (LTV) from 90% to 93% for borrowers above a 31% mortgage debt to income (DTI) ratio or above a 43% ratio

Eliminates government profit sharing of appreciation over market value of home at time of refi. Retains government declining share (from 100% to 50% after five years) of equity created by the refi, to be paid at time of sale or refi as an exit fee

Authorizes payments to servicers participating in successful refis

Administrative simplification: (a) eliminates borrower certifications regarding not intentionally defaulting on any debt, (b) eliminates special requirement to collect 2 years of tax returns, (c) eliminates originator liability for first payment default, (d) eliminates March 1, 2008 31% DTI test, (e) eliminates prohibition against taking out future second loans, (f) requires Board to make documents, forms, and procedures conform to those under normal FHA loans to the maximum extent possible consistent with statutory requirements.

HOME BUYER STIMULUS

Requires Treasury to develop a program, outside of the TARP,  to stimulate demand for home purchases and clear inventory of properties, including through ensuring the availability of affordable mortgages rates for qualified home buyers.  In developing such program, Treasury may take into consideration impact on areas with highest inventories of foreclosed properties.  The program will be executed through the purchase of mortgages and MBS using funding under HERA.

In developing such program, Treasury shall provide mechanisms to ensure availability of such reduced rate loans through financial institutions that act as either originators or as portfolio lenders.

Treasury shall make the affordable rates available under this program available in connection with Hope for Homeowner refinancing program.

It is clear we have not seen the last piece of legislation that will effect mortgage loans and the real estate market. There have been more major changes in mortgage financing rules in the past 12 months than were made over the past 10 years. Hold on to your hats because the ride is just beginning.


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