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New Housing & Economic Recovery Act Provides New Market Stability

July 31, 2008 by  
Filed under Finance, National

The President signed into law the long-awaited Housing and Economic Recovery Act of 2008.  The housing bill is very broad and affects the GSEs (Fannie Mae and Freddie Mac) and FHA.  It makes permanent many of the changes put in place as part of the Economic Stimulus Act passed earlier this year, most importantly a permanent increase in conforming conventional and FHA loan limits.  It also provides tax incentives for first-time homebuyers, provides financial support for modernization of FHA, and has several provisions to strengthen and reform Fannie and Freddie.

Outlined below the key changes that will affect borrowers. Some of the provisions go into effect immediately, and others on October 1, 2008 or January 1, 2009.

Higher Loan Limits – Raises Fannie Mae and Freddie Mac and FHA single family loan limits on a permanent basis.  The bill sets the GSE loan limit for single family one-unit properties at the greater of $417,000 (with increased limits for other single family properties up to four units) of 115 percent of the local area median home price, as determined by HUD, up to a cap of 150 percent of the GSE limit of $417,000 for a one-unit property or $625,500 in high cost areas.   The new loan limits will go into effect on January 1, 2009 after the limits in the Economic Stimulus Act expire on December 31, 2008.  They will be lower than those set by the Economic Stimulus Act which used 125 percent of median, but they will still be significantly higher than the old limits in most areas, and they will be permanent.  For example, in King, Pierce, and Snohomish counties the new limits will be $522,100 under the new bill.  We will distribute the new maximum loan limits as soon as they are published.

Tax Incentives – Establishes a first-time homebuyer tax credit of up to $7,500.  The credit will be for home purchases from April 9, 2008 through June 30, 2009.  There are income limits of $75,000 for an individual qualifying as a first-time homebuyer (i.e., has not owned a home in the last three years) and $150,000 for a family.  The tax credit has to be repaid over 15 years, making it a tax-free loan.  We will provide more details on this in the near future.

FHA Changes – The bill includes several significant provisions related to FHA, beyond the higher loan limits mentioned above.

Cash Investment Requirement – The cash investment requirement for FHA transactions will be set at 3.5 percent.  While the exact timing is yet to be announced, it is expected that this will be effective very soon.

Seller-funded Down Payment Assistance – Down payment assistant programs involving sellers or third parties (e.g. Nehemiah) will no longer be accepted on FHA loans as of October 1, 2008.  (Borrowers must be approved on or before September 30).

Risk-based Pricing Moratorium – A moratorium on risk-based pricing based on FICO scores will be imposed for one year beginning on October 1, 2008.

FHA Modernization – Provides financial resources for modernizing and streamlining the FHA loan process.  Most notably, the bill gives FHA authority to streamline condominium approval.  This should make it much easier to provide FHA loans to purchasers of condo units.  Details on this will follow, so we don’t know anything yet.

FHA Rescue Plan (foreclosure relief) – Authorizes a new FHA “Home for Homeowners Program” to refinance existing borrowers into fixed rate FHA mortgage products.

VA Loan Limit will increase

GSE Regulatory Reform – The bill strengthens regulation of Fannie Mae and Freddie Mac through creation of a strong new regulator.

GSE Stabilization – Establishes several new powers and grants authority to stabilize the GSEs in the event of a financial crisis.

This is a very important piece of legislation for the housing market.  It will help stabilize and restore confidence in Fannie Mae and Freddie Mac.  It will also expand borrower access to mortgage credit at the most favorable price and terms through conforming conventional and FHA loans on a permanent basis.  And when FHA completes changes to its condominium eligibility requirements it should open up many more condo projects to FHA financing.

These provisions should help sell houses/condos again, and give us stable loan programs for borrowers.  FHA is gaining market share, and will provide more information as it rolls out.

Increased Loan Limits

March 7, 2008 by  
Filed under ALL CONDOS

FHA has published their increased loan limits effective 3/5/08. King, Pierce and Snohomish Counties have increased to $567,500, and San Juan County to $593,750. Jefferson, Kitsap and Skamania counties all saw significant increases. Please visit https://entp.hud.gov/idapp/html/hicostlook.cfm to view all the changes.

The Law Has Been Passed!

February 16, 2008 by  
Filed under Finance

Understanding the Higher Loan Limits

We have seen a whirlwind of legislative activity these past few weeks! There is much confusion surrounding the recently passed Economic Stimulus Package and higher loan limits. Unfortunately, the new law can be confusing to decipher, and not everyone will benefit. For this reason, we have provided an outline below that clarifies what this new law means for you and how you can benefit from the higher loan limits.

Description and Overview:

An economic stimulus package just passed Congress on February 7, 2008 and was signed into law by the President on February 13, 2008. This new law is effective immediately and includes a temporary increase in both the FHA and conforming loan limits to as high as $729,750 in high cost areas. This means that the interest rates on many mortgages will go down because these loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the Federal Housing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances lower than $200,160 – $362,790, depending on the county where the property was located. Also, Fannie Mae and Freddie Mac were only allowed to purchase loans with balances at or below $417,000. This resulted in limited options and higher financing costs for those with loan balances above these limits. The new law substantially increases these limits in high cost areas and opens up new options and lower financing costs for many people.

How to Determine “High Cost” Areas

There are two things you must know in order to determine if you are in a high cost area:

1. Understanding the Formula

If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750. Here are three examples to illustrate this concept:

  • If the median home price in your area is $225,000, 125% of that number is $281,250. This is below the current $417k conforming loan limit. Therefore, the conforming loan limit in your area will not change. However, if $281,250 is greater than the FHA limit in your county, your FHA limit will go up to $281,250.
  • If the median home price in your area is $375,000, 125% of that number is$468,750. This is above the current $417k conforming loan limit. Therefore, the conforming loan limit in your area WILL change and go up to $468,750. This number is also higher than the highest FHA loan limits, so therefore your FHA loan limit will also go up to $468,750.
  • If the median home price in your area is $650,000, 125% of that number is $812,500. This number is greater than the maximum cap of $729,250. Therefore, the conforming loan limit in your area will increase to highest allowable amount under this new law which is $729,250.

2. Determining the Median Home Price in Your Area

The Secretary of Housing and Urban Development (HUD) will publish the median house prices within 30 days of the bill going into effect (30 days from February 13, 2008). HUD does not have any interim stats or information for us to use. However, the bill also states that HUD can use any commercially available data if they are unable to compile the information on their own within the 30 day timeframe. With that in mind, it is likely that HUD’s numbers will be relatively consistent with the data published by the National Association of Realtors (NAR), which already has a solid track record of tracking and publishing this information on a quarterly basis.
Therefore, until HUD actually publishes their version of the median home prices, the most accurate way to get this information today is to utilize the data that is published by NAR. Ironically, NAR just released their latest median home price update for the 4th quarter of 2007 on February 14, 2008! Contact me today and I’ll research your info and let you know exactly what the median home price is in your area and how you can benefit from this information.

calendar imageWhat do all the dates mean?

There is some confusion because the bill has a provision that says the higher limits are only effective for loans originated between July 1, 2007 and December 31, 2008. In short, the reason it is effective beginning July 1, 2007, is because the credit crisis started to unfold in July and August of 2007. Mortgage market conditions rapidly deteriorated almost overnight. Many secondary market investors suddenly refused to purchase loans that couldn’t be sold to Fannie Mae and Freddie Mac. (For more info on how this process works, please see the article entitled Saga of the US Mortgage Industry.)

Unfortunately, many mortgage banks had already funded these loans in their own portfolio or through their warehouse lines of credit. Their intention was obviously to sell these loans on the secondary market after the loans were funded. However, the credit crisis prevented them from doing so, and they were stuck holding these loans in their portfolio. The July 1, 2007 date in the bill is designed to allow these lenders to unload these mortgages and sell them on the secondary market to Fannie Mae and Freddie Mac.

However, the July 1, 2007 date has no bearing whatsoever on new refinance transactions! In other words, it doesn’t matter when the loan you are refinancing was originated. The old loan could have been originated in 2005, 2006 or anytime before or after July 1, 2007 and it would have no effect whatsoever on your current purchase or refinance transaction. If you are refinancing a new loan today, whether it is a purchase or refinance transaction, that loan is subject to the new limits set forth in the bill.

The other date of December 31, 2008 means that the old limits will go back into effect after this year. In other words, now is the perfect time to buy a new home or refinance your mortgage because after this year, your costs will be higher and your options more limited again.

When does this all go into effect?

February 13, 2008 – immediately upon the President’s signature. Therefore, HUD is obligated to publish the median home prices within 30 days of that date. However, Fannie Mae, Freddie Mac, and various wholesale lenders may have different policies as to how these new loans are going to be priced and underwritten. That is why it is imperative that you work with a Certified Mortgage Planning Specialist who is committed, qualified and equipped to give you timely information and expert guidance every step of the way. Contact me today for a complimentary consultation. I can look up the median home price in your area and see whether you can save money in any way. Also, please pass along this update to anyone you know who may be able to benefit, and I’d also be happy to look up the median home price in their area and discuss with them whether they could save money.

Compliments of Lori Richmond at Golf Savings Bank