Apparently George W. Bush reads my http://www.AtlantaBlog.wordpress.com, because soon after http://www.LKBrealestate.com published “Fannie & Freddie & Bear (Stearns), Oh My!” (if you missed it, just scroll down) the White House dropped its opposition to proposed legislation by which the Federal Reserve and the Department of Treasury could help support Fannie Mae and Freddie Mac, if necessary.
The House and Senate must read my blog, too, because they passed H.R. 3221 (“Housing and Economic Recovery Act of 2008”) and sent it to Bush for his signature, which he affixed on Wednesday. Man, the power of the press!
There are many facets to this legislation, but from your perspective as a real estate buyer or seller in today’s marketplace, it means that the two most invaluable sources of liquidity in the mortgage market remain intact despite so many other adverse conditions.
Fannie and Freddie either directly purchase and hold for investment, or purchase and pass through to the secondary mortgage market (investors), half of the mortgage loans in the United States. As described in my “Fannie & Freddie & Bear (Stearns), Oh My!,” they were getting squeezed from all sides when the secondary investors stopped buying, some borrowers stopped paying, and the government simultaneously pressured them to keep buying newly originated mortgage loans, but would enforce minimum capital requirements if their reservoir of money (which was going out the door) got too low.
IMMEDIATE EFFECT: IF YOU QUALIFY, MORTGAGES STILL AVAILABLE
So part of House Bill 3221 assures governmental sources of money for the next 18 months, for Fannie, Freddie and the Federal Home Loan Banks, in the event they need it. Which means they can stay in the mortgage business. This alone is momentous for stability in the housing market.
Before the legislation, the fear was that even if a buyer had good income and good credit, she/he may not have anywhere to go to obtain a mortgage if Fannie and/or Freddie fail. Now, if you qualify, there is some assurance that there is money out there to be had. Whether you are in the market or not, this cushion props up the value of your home (see AtlantaBlog on supply and demand. Scroll down to “It’s A Beauty Contest”).
There’s a Homebuyer Tax Credit in the legislation – something I’ll have to see explained better. But it goes like this: a $7,500 tax credit for any qualified home purchase between April 8, 2008 and June 30, 2009. But the credit is repaid over 15 years.
Maximum Fannie and Freddie loans are being raised… the August 1 2008 FHA website says the Atlanta-Sandy Springs-Marietta MSA FHA ceiling for a single family residence is $417,000. See: https://entp.hud.gov/idapp/html/hicostlook.cfm. But the ceiling may be raised October 1, 2008.
The bill also addresses two other governmental sources of mortgage financing, Federal Housing Administration (FHA) loans, and Veteran’s Administration (VA) loans. Generally in “good times” they are out of favor because mortgage money is easier to obtain from traditional sources. FHA and VA loans typically step up in importance when economic conditions soften, as they have now. There is a bit more federal red tape, and additional fees involved, but with an FHA loan you only need a 3.5% down payment, something you won’t find elsewhere in these times.
Previously modest FHA loan maximums had diminished their appeal, but the limits were raised with H R 3221, to $346,250 in the Atlanta-Sandy Springs-Marietta MSA (see the same https://entp.hud.gov/idapp/html/hicostlook.cfm ). Again, this ceiling may be raised October 1, 2008.
Maximum dollar limits for VA guaranties on home loans were also raised, temporarily.
LONGER TERM ISSUES: HOPE for Homeowners, New Regulatory Body
The “HOPE for Homeowners” provision goes into effect October 1, 2008. With it, homeowners in imminent danger of losing their home to foreclosure can get relief by refinancing their existing loan, assuming 1) the existing lender takes a principal haircut before borrower refinances with a new FHA-insured loan, 2) borrowers agree to share 50% of all future equity with the FHA, and of course, 3) the borrower can afford to pay the new loan. Loan limit for this program is $550,440.
Other provisions in the Housing and Economic Recovery Act of 2008 support affordable rental housing, address loans for manufactured homes on leased land, address FHA reverse mortgage loans for seniors, and create a new new regulator for Fannie, Freddie and the Federal Home Loan Banks. Called the Federal Housing Finance Agency (FHFA), its first Director, James B. Lockhart, issued this statement “We will… ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing, and operate safely and soundly.”
For this blog I’ve relied in part on a 5 page summary of all the terms of this almost 700 page bill; you can read this US House of Representatives’ Summary by going here:
Click to access detailed_summary_of_hr_3221.pdf
I’ve also relied heavily on the National Association of Realtors’ “Summary of Key Provisions.”
Atlanta Market Trends 