President George Bush put pen to paper today and signed the Housing and Economic Recovery Act of 2008. There is a lot to this bill, some good and some bad. Here are the highlights: the good, the bad and the hideously ugly...
Conforming Loan Limits
Conforming loan limits were permanently set at $417,000 or 115% of local median home price (with a $625K cap), whichever is greater. For those of us here in Tucson, that means a conforming limit of $417,000. This will allow those needing to borrow money up to that amount to do so at "normal" rates as opposed to the jumbo rates which are typically 2% higher. I consider the permanent conforming loan limits to be good.
Loan Origination Requirements
Bill HR 3221 strengthens the state run programs for loan origination licensing and requirements. We desperately need some regulation of the people who are handling our finances and advising us regarding what loans would be best so I consider this also to be part of the "good".
Homebuyer Tax Credit
Interestingly, the Homebuyer Tax Credit is less a credit and more a loan. The $7500 tax "credit" must be paid back within 15 years, making it in effect a no-interest loan. Here in Tucson most people move several times within 15 years so the unpaid portion of the credit would be paid off upon the sale of the home. Still, I have to wonder if offering people a no-interest loan is really the way to go. Aren't we in this mess because so many people were encouraged to live beyond their means in the first place??? I say this is part of the BAD.
FHA Foreclosure Rescue
In order to stop the amount of foreclosures coming onto the market, we have been given the FHA Foreclosure Rescue plan. I have to admit that I am not happy at all about the government insuring loans that were previously subprime as it puts the taxpayer in a very dangerous position. Here's how it works: the banks with subprime mortgages heading to foreclosure will voluntarily take a write-down to 85% of the appraised value. Keep in mind that the bank may be losing much more than 15% if the loan is higher than the appraised value. The FHA then turns around and gives the borrower a loan at 90% of the appraised value in exchange for 50% of all future appreciation!!
The bank that made the loan to begin with will get none of the future appreciation, but instead is left writing off the amount above 85% of the appraised value. If a bank is looking at their bottom line, they are only going to send the worst of the worst over to the government to participate in this. All of their other loans they will try to work out with the borrower or sell as short sales on the market in hopes of recapturing 90% - 100% of the appraised value.
So the government is going to be insuring not just subprime loans but the very worst subprimes. Obviously, they are hoping that sharing in 50% of the appreciation on the ones that do well will cover their losses on those people who absolutely won't pay their mortgages.
For the people who can take advantage of this program and will pay their new mortgages, it will be a way out of a very bad situation. However, I don't see how it is wise to require the taxpayers to take all the risk on these loans that aren't being paid to begin with. Uncle Sam, this is hideously UGLY.
To Learn More
If you would like a review of the key provisions of this bill and to learn more about them, please visit http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions?OpenDocument. I have only outlined a few of them and there are many more.
If you'd like to take advantage of the foreclosures already on the Tucson real estate market and get a steal of a deal, give me a call. I make it a practice to get the lowest price possible for my clients so they can take full advantage of the market when prices begin to rise again. My phone number is 520-481-3695.
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