The president has just signed the Federal Housing and recovery Act of 2008. Legislation that will overhaul the Depression-era FHA and provide mortgage relief for 400,000 homeowners struggling with foreclosure woes.
This bill is also designed to quiet the jitters on Wall Street by offering some financial relief and additional accountability for the troubled, government-sponsored mortgage companies Fannie Mae and Freddie Mac.
While the bill started with a battle between the White House and the Democrats in Congress, bi-partisan support eventually led the President to withdraw his veto threat. Below are some highlights of this far reaching legislation.
Homeowner Relief Measures (Hope for Homeowners Act of 2008)
The law creates a new program to back FHA-Insured mortgages for debt-laden homeowners. Up to $300 billion will be available through the voluntary program operated by a board consisting of the HUD and treasury secretaries, and a chairman of the Federal Reserve Board and the Federal Deposit Insurance Corporation. (FDIC)
In exchange for new mortgages, homeowners will share future appreciation with the FHA. Borrowers must also meet a payment burden test to determine if they can afford a new mortgage.
Banks must agree to relinquish their claims for a payment equal to 85% of the current value of the home.
The homeowner relief program begins Oct. 1st 2008 and ends on Sept. 30th 2011.
New regulator for FHA
The law creates a new, independent regulator called the Federal Housing Finance Agency to govern GSE's (government sponsored enterprises). It will oversee Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
The Treasury Department has been granted temporary authority to purchase debt and equity of Fannie Mae and Freddie Mac through 2009 to provide financial stability for the mortgage giants.
Modernization of FHA
The law increases the FHA loan limit to 115% of area median home price with a cap at $625,000.
Down payments of 3.5% will be required for any FHA loan
Seller assisted down payment programs (such as Nehemiah) will end October 1st
The FHA mortgage insurance premium will increase to 3%.
The FHA's program for reverse mortgages is expanded with higher mortgage limits.
Tax Credits
Provides new first-time home buyer tax credit which is equivalent to an interest free loan of 10% of the purchase price of the home (up to $7500) to be repaid over the course of 15 years. It will be available through July 2009 for taxpayers who meet adjusted gross income levels.
Rules relating to the Low Income Housing Tax Credit will be simplified and states will see increased housing tax credit in 2008 and 2009 depending upon the size of the state.
Allows a new standard deduction for homeowners who do not itemize on their tax returns.
Other Provisions
The bill lengthens the time a lender must wait before starting foreclosure after a sooldier returns from service (from 3 to 9 months) and also provides returning soldiers with one year of relief from increases in mortgage interest rates.
Enhances mortgage disclosures requirements to require lenders to inform borrowers of the maximum monthly payments possible under their loans.
Provides additional funding for housing counseling and legal services to distressed borrowers.
44 billion will be provided for emergency Community Development Block Grant money to purchase and clean up abandon homes in areas blighted by foreclosures.
Source http://www.banking.senate.gov/public
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