Highlights of New Federal Housing Bill - No Handouts Here!

This week some pretty sweeping changes came into play as  President Bush signed into law the Housing and Economic Recovery Act of 2008. This legislation primarily seeks to protect homeowners from foreclosure, stop declining home prices, and stabilize the mortgage industry. While I can't Dissect the whole thing her ein one blog post I wanted top point out three provisions that I feel are of interest to most home buyers and sellers:

As a seller you no longer need to give the buyer your social security number! I say THANK YOU! this was a long overdue change.   Up until now seller(s) had to sign a disclosure giving the buyer - who by the way IRS hold liable - this paperwork with their social security number on it and their declaration of how they will be treating the proceeds of the sale.  Of course with all the identity theft this was just one more opening for a problem down the road. Not that the buyer would probably do anything with your # but lets face it boring documents like these tend to get shuffled around left in boxes in garages and attics so who knows who would wind up with it down the road. 

Here is the text for this portion of the bill:

 (- SELLER NEED NOT REVEAL SSN TO BUYER UNDER FIRPTA: Effective immediately, sellers are no longer required to provide to their buyers the Seller's Affidavit of Nonforeign Status (C.A.R. Form AS), which includes the sellers' social security numbers, under the Foreign Investment in Real Property Tax Act (FIRPTA). Instead, as another option, no federal withholding is required if the seller furnishes the Seller's Affidavit with his or her social security number to escrow or other qualified substitute as defined, who in turn, furnishes a statement to the buyer stating, under penalty of perjury, that it has the Seller's Affidavit in its possession. A "qualified substitute" is a person responsible for closing the transaction, such as an escrow company, title company or the buyer's agent, but not the seller's agent. The federal withholding law is now similar to California's Franchise Tax Board (FTB) policy which allows the escrow officer to remove the seller's tax ID number from the buyer's copy of the California withholding tax statement, but not other copies.)

Now on to the part that many distressed homeowners are waiting for. You can get a better loan that you can afford but..........

 $300 BILLION IN FHA REFINANCING: Under the HOPE for Homeowners Program, 400,000 distressed homeowners can pay off their troubled mortgages and replace them with more affordable, FHA-insured loans. To qualify, a borrower's monthly payment on existing mortgage loans must be over 31% of his or her income as of March 1, 2008 (hence demonstrating the borrower's inability to afford the original loans). The original loans must have been originated before 2008, and secured by the borrower's principal residence (as well as only residence). Also to qualify, the borrower must satisfy FHA underwriting requirements for the new FHA-insured refinance loan.
     The FHA refinance will be a fixed rate loan up to $550,400 for at least 30 years, and will include charges for FHA insurance premiums. The maximum loan-to-value ratio of the FHA refinance is 90% of the appraised value. If the refinance proceeds are insufficient to pay off the existing liens, the refinance will not go through unless the original lenders voluntarily agree to accept a short payoff as payment in full. Rules will be established to allow, among other things, equity sharing for the original junior lienholders.
     Upon obtaining the FHA refinance, the borrower must share with the FHA at least 50% of any equity realized through a subsequent sale or refinance. The FHA's share in equity will be based on a sliding scale of 100% of any equity realized within the first year of the FHA loan, 90% the second year, and so on, but not less than 50%. The HOPE for Homeowners Program shall be in effect from October 1, 2008 to September 30, 2011.

As you can see this help is not going to come without a price tag.  50% of any future profit on the home.  If anyone was looking to just be totally cleared of responsability for their bad loans this shows that won't be happening.  However, if it helps someone keep their home perhaps it is a trade off that is well worth it.  I do wonder about the effect these loans will have on the sales process down the road.  I fear that some homeowners will forget that they have this arrangement as the years go by.
 
First time homebuyers get a $7,500 tax credit that is really a loan:

With certain exceptions, a first-time homebuyer will receive a tax credit of 10% of the purchase price up to $7,500 maximum, for the tax year in which the buyer purchases a principal residence. The tax credit, however, must be repaid like an interest-free loan in equal installments over the next 15 years or in full if the homebuyer sells the property for a gain. A buyer qualifies as a "first-time" homebuyer as long as the buyer (and spouse if any) has not owned a principal residence in the U.S. for the last three years. The tax credit phases out for a taxpayer with a modified adjusted gross income over $75,000 (or $150,000 for joint returns). This tax credit is available for qualifying homes purchased from April 9, 2008 through June 30, 2009.

New loan limits next year for FANNIE MAE, FREDDIE MAC, AND FHA REFORM: The new law permanently sets the conforming loan limit for FHA and government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac at 115% of an area's median home price, not to exceed $625,500. The new loan limits take effect after the current $729,750 loan limit expires on December 31, 2008.

So no handouts here though there is some much needed help for homeowners in distress. I can't emphasis enough the importance of talking with a competant loan professional and/ or tax advisor who can help you navigate these changes.  Don't let anyone rush you into making changes before you fully understand the implications to you.