Thursday, July 24, 2008

Housing Stimulus Bill Passed, President Says He'll Sign

President Bush lifted his veto threat and the House passed a housing stimulus package on Wednesday.  Some key provisions of the bill include:

  1. $300 Million to help homeowners facing foreclosure refinance their mortgages into FHA loans. The lender would have to agree to take a loss on the original loan and lender participation in the plan is voluntary.

  2. $3.9 Billion in block grants to help local communities buy up (often vacant) foreclosed homes, rehab them, and resell them. Fred Karnas, Arizona’s Department of Housing director says Arizona can expect to receive about $100 million of that money, based on a formula that favors states with the greatest number of foreclosures.  With the median home price in the Valley hovering the mid-$200’s, this will help the city buy about 500 homes. (AZ Republic)

  3. $15 Billion in housing tax breaks, including a $7,500 tax credit to first time home buyers. This provision applies only to buyers who purchase between April 9, 2008 and July 1, 2009. The full tax credit is available only to homeowners making less than $75,000 (or couples earning less than $150,000). Finally, the tax credit must be paid back, interest-free, over the next 15 years.

The bill addresses Fannie Mae and Freddie Mac’s recent woes. The bill will:

  1. Grant an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac and allowing the federal government to buy equity in those institutions. (AZ Republic). The Congressional Budget Office estimates that there’s a 50% chance F & F will weather this crisis without resorting to using this money. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation's total. (NPR)

  2. Create an independent regulator to ensure sound management and operating standards for those lending institutions, including the power to limit the compensation o the companies' executives. (AZ Repub and LA Times)

  3. Impose a new cap on the size of mortgages that Fannie or Freddie can buy or guarantee. In certain high priced locales, the cap will be $625,000, while other in areas the cap will be up to 15% of the median home price. (NPR)

Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. (AZ Republic).  This is the most interesting to me. Metro Phoenix housing prices have dropped enough in many neighborhoods to be affordable again for folks who were priced out of the market during the boom-boom years of 2005-6. The combination of lower rates and lower prices could be just what the doctor ordered to get metro Phoenix real estate moving again.

The bill includes some important changes to the FHA loan program. 

  1. The required down payment on FHA loans is increased from the current 3 percent to 3.5 percent.

  2. Another provision of the bill effectively shuts down AmeriDream and Nehemiah Corp, and nonprofits like them, who help sellers pay for buyer’s down payments. The bill bans federal insurance for mortgage loans if the seller pays the buyer’s down payment through a nonprofit intermediary. Can’t get mortgage insurance? You’re not getting a mortgage.

As big as AmeriDream is, they probably don’t have the financial wherewithal to insure mortgages by themselves, so in effect they’re out of business. But this could present an opportunity for a new breed of for-profit companies to issue PMI (private mortgage insurance) on loans where sellers made the buyer’s down payment.  There is a documented slightly higher risk of default among buyers who didn’t save their own down payment. But there are probably also companies out there willing to underwrite that risk.  Give it time.

Interestingly, neither AmeriDream nor Nehemiah has any press releases or other info posted on their websites today. As long time readers of my blog know, I'm a big supporter of these programs, and am very sad and discouraged to see them go. HUD has been trying to get rid of Down Payment Assistance programs since at least October of last year. I'm saddened, but somehow not at all surprised, that HUD very quietly used this popular housing stimulus bill to kill the programs when every other means they tried didn't succeed. See my entries of October 21November 1, December 30, March 3 and June 17 for more history.  

Update, 5:30pm Jul 24: My colleague, blogging Realtor Jamie Geiger has more information about the demise of AmeriDream type programs. Jamie is a great resource for buyers and sellers on the far East side of the Valley. I can't help you out east of Scottsdale Road, but Jamie can!

The following news sources were used in compiling this article: