Sing hallelujah, the Senate has finally passed a comprehensive housing and foreclosure prevention bill. And this is none too soon folks, because in case you haven’t heard the government seized Indymac bank about an hour ago! This seizure is the largest of its kind in U.S. history, and we don’t know as of yet exactly how it will effect homeowners whose loans are held by them. Rest assured though that as soon as I find out, you will find out. But now about the Senate bill that will hopefully help out the sagging housing market.
So to start out with this bill will create a new program to help prevent home foreclosures, to the tune of $300 billion, which aint too shabby. It will also keep a closer eye and provide more oversight to two of the nation’s largest mortgage companies, Fannie Mae and Freddie Mac, which they hope will prevent the shady lending practices that got us into this mess in the first place. You know what I’m talking about, mortgage lenders getting people into homes they know couldn’t really afford them, by not fully disclosing the details of the loan, mortgage lenders putting pressure on real estate appraisers to bring in values higher than the market was reflecting and real estate agents who weren’t spending the time explaining all the ins and outs of the home purchase to their clients.
The bill still has to go back to the House, which is expected to make some minor and major tweaks, so we’ll still have to wait and see if everything in will end up being as helpful as they say it will, but I’ll tell you what, this is at least a step in the right direction. However, that likely back-and-forth makes it uncertain when lawmakers will be able to send final legislation to President Bush for his consideration. So again, one step forward, two steps back. One of the reasons it has taken this long to get this far is that the House was hoping the housing market would correct itself, unfortunately, things got so bad so fast it was hard to keep up.
The housing marketbill attempts to address this crises by providing more relief for borrowers facing foreclosure, as we know, you can’t get government help right now unless you are already behind on your mortgage payments to your mortgage lender. The bill also hopes to increase access to mortgages in higher-cost areas and modernize the loan guidelines for the Federal Housing Administration (FHA). Ok, that all sounds good, but what does that really break down to for people already in or wishing to get into the real estate market?
First off, under this new bill, FHA could insure upwards of $300 billion in new 30-year fixed rate mortgages for the higher risk home buyers, but that is contingent on the mortgage lender agreeing to write down their loan balance to 90% of the current appraised value of the home. In order to do this you, the mortgage lender or the real estate agent must hire a real estate appraiser to research the fair market value in that particular area. But the mortgage lenders would also have to pay the upfront fees to the FHA equal to 3% of the home’s appraised value. You may be thinking that no mortgage lender would be willing to take such a cut, but ask Indymac if they would have liked the chance to take advantage of this deal. Remember, home owners, home buyers and home sellers aren’t the only ones hurting in this housing market.
Another aspect to this bill is that it would permanently cap the size of mortgages guaranteed by Fannie and Freddy to $625,000, and the limit at all three agencies to nearly $730,000. These higher loan limits for higher-risk borrowers would make it much easier for them to get a loan, a loan in which the mortgage payments would remain stable. So if a higher-risk borrower is able to pay their mortgage at the time they purchase their home, they should always be able to pay it, barring any unforeseen circumstances that is.
FHA rules would be updates as well, for example; the bill would increase down payment requirements from 3% to 3.5% and would eliminate the program that allowed sellers to provide down payment assistance, which actually takes away some assistance to the buyer, but I guess they feel the rest of the bill should supplement the help that is needed enough. There is actually more to the new bill, but until the President actually signs it, nothing is set in stone.
Whether you think this is good news or not depends on who you are, what part of the housing market is affecting you and if you believe the government has your best interests in mind. I for one continue to take a wait and see attitude, but that’s just my opinion. One thing I do know for sure, is that the real estate industry and the public at large need some type of break, so I hope this is just what the doctor ordered.