On July 30, 2008, President Bush signed into law the Housing and Economic Recovery Act of 2008 (aka The Housing Stimulus Bill) which is intended to stimulate the housing market, help prevent foreclosures across the nation, and strengthen the nation's economy as a whole. The National Association of Home Builders and the National Association of REALTORS® have been top advocates of this legislation and its proposed effects of ending the cyclical downturn in the housing industry, as well as creating jobs.
The bill is, of course, very in-depth and detailed. However, some of the key points are summarized below:
A temporary first-time homebuyer tax credit up to $7500 is intended to encourage aspiring homebuyers to move forward and make a purchase. It is available for qualified home purchases with closing dates of April 9, 2008 through June 30, 2009; therefore, time is of the essence. It is essentially a zero interest loan versus a traditional tax credit in that it must be paid back over the course of 15 years or upon the sale of the home if there is sufficient capital gain. For these purposes, a first time homebuyer is someone who has not owned a principal residence during the 3 year period prior to the purchase.
FHA is planning to expand and change with the market. Popularity for FHA loans had waned greatly over the last 20 years but is now one of the more viable alternatives to the volatile sub-prime market. The loan limits have been permanently increased and will go into effect once the Economic Stimulus limits have expired on December 31, 2008. Other reforms include streamlined processes and greater flexibility to truly meet the needs of homebuyers. A key change is that the down payment required has increased from 3% of a home's purchase price to 3.5%. Additionally, the FHA is attempting to help with home loans heading towards foreclosure. They have authority to guarantee up to $300 billion in new mortgages for primary residences which are facing the possibility of foreclosure. This could give an estimated 400,000 homeowners the opportunity to refinance problematic loans in a way that would allow them to stay in their homes.
GSE (Government Sponsored Entities) reform applies to regulation of Fannie Mae, Freddie Mac, and Federal Home Loan Banks. As with FHA, the conforming loan limits will be permanently increased at the end of this year which is proposed to help buyers, especially in the higher-cost markets. The U.S. Treasury will also be able to makes loans and buy stock from the GSEs to insure stability and success of those programs.
Some additional points worthy of mention are as follows:
Seller-Funded Downpayment Assistance Programs - effective October 1, 2008, FHA insured loans will prohibit downpayment assistance programs funded by those who have a direct financial interest in the sale but will still permit assistance from family members, government programs or charities that are not seller-funded.
Mortgage Revenue Bond Program - authorizes $10 billion in revenue bonds to be used for refinancing sub-prime mortgages.
Low Income Housing Tax Credit - modernizes and enhances the program to make more efficient in attempts to expand the supply of much needed affordable rental housing.
CDBG (Community Development Block Grants) -provides $4 billion in neighborhood revitalization funds for communities to use to purchase foreclosed homes in order to prevent the blight of abandoned homes.
As with all new legislation, only time will tell if it meets its intended effects, but it is hopeful that the housing industry will receive a much needed boost in terms of home prices, the entry of first time homebuyers into the market, and a turnaround in the number of foreclosures nationally.
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