No, I did not take a little blue pill. I am talking about the economic stimulus package that was passed by both the house and the senate this week. Everyone expects President Bush to sign the combined bill into law early next week. The headline information is on the tax rebates, which I think are a mistake, and how much money we Americans can borrower from ourselves to help stimulate the economy. My question is what happens in 2009 when everyones tax refund is reduced by the amount of the "rebate" ( call it what it is and that is a LOAN!) they received now? How do we stimulate the economy then?
More importantly is the verbiage that will have an effect on the real estate industry. First we have the definite increase to FHA loan limits up to the conforming limit of $417,000 ( maybe higher in some cases). I think this is the most important part of the bill that could help the industry. The reason is the under served market from about $205,000 to $417,000 sub-prime loan amounts that can not turn to FHA to bail them out of their self-destructing loans. Due to ever tightening and changing FNMA underwriting guidelines this segment has been caught between a rock and hard place with no to refi out of a high cost adjustable rate loan. Now with FHA having the ability to serve this market due to higher limits we could see several thousand more people be able to save their home. The down side to this is a mandatory Up Front MIP for all borrowers. It will be a tough pill to swallow a $5000 or $6000 MIP charge if you have equity in you home but have to turn to FHA for financing. All the more reason we need the FHA modernization bill to pass sooner rather than later.
The other part of the bill is to raise the conforming loan limits to as high as $729,750. There is even provisions for banks or lenders to sell loans that were originated and closed prior to the bill passing that could help them clear these loans off of their books. Before you get too excited I think it is important to point out that this limit will be based on 125% of the HUD median sales price for the area. The problem is that no one knows what this number is. HUD has never published them. The Bill gives them 30 days to determine what this number will be for each MSA. So......... if you are on the west coast or New York, Chicago, Miami, etc this may be some relief for your clients in getting a mortgage deal of a lifetime with the current level of mortgage rates.
I think overall this could be good for the market and allow a bottle neck to be unplugged to get the real estate market churning again. That is, of course, if the builders do not screw that up But more on that next time..............