The Housing Rescue Bill

Today President Bush signed a housing “rescue” bill HR 3221.  I’m really still absorbing all of this (I think it’s taking me a bit longer after my trip to Inman Connect).   Here are a few quick pointers:

The FHA risked base mortgage insurance pricing (which I’m in favor of) that was to be effective last week is now postponed until September 30, 2009.   FHA can now save some borrowers in trouble with their mortgage if their existing lender will forgive the underlying debt to 85% 90% of the current value of the home.   Gee…risked based MIP might be handy in these cases.

Also with FHA, Seller paid down payment assistance programs are will be gone and the minimum down payment for an FHA insured loan will be 3.5% (which is a very small increase) beginning October 1, 2008.

Jumbo FHA and Jumbo Conforming loan limits will be reduced from the current 125% of median home value to 115% of the median home value beginning January 1, 2009.   As I mentioned, your days of a loan amount of $567,500 are numbered.   The new conforming/FHA jumbo limit may be closer to $520,000.  

First time homebuyers (someone who has not had interested in a property for the past 3 years) are eligible to receive a tax credit…however, it’s really an interest free loan to be paid back over 15 years or from the proceeds when the home is sold (which ever comes first).  This is available only for homes purchased on or after April 9, 2008 and before July 1, 2009.  Income restrictions do apply.   For more information, check out this website.   

Last but not least (and I’m sure I’m missing stuff) Fannie and Freddie have a new regulator: The Federal Finance Housing Agency aka FHFA.   This from James B. Lockhart:

“Today President Bush signed the ‘Housing and Economic Recovery Act of 2008.’ I thank President Bush and Secretary Paulson for their leadership in making government sponsored enterprise (GSE) regulatory reform a reality.

The Act creates a world-class, empowered regulator, the Federal Housing Finance Agency (FHFA), with all the authorities necessary to oversee vital components of our country’s secondary mortgage markets — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — at a very challenging time.  As Director of the new agency I look forward to working with the combined Federal Housing Finance Board (FHFB), Office of Federal Housing Enterprise (OFHEO) and Housing and Urban Development (HUD) GSE Mission teams and with other regulators to ensure the safety and soundness of the 14 housing related GSEs and the stability of the nation’s housing finance system.

For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors.  As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing and operate safely and soundly.”

Too much to write about in detail for one post…just wanted to throw you some bits.

150 thoughts on “The Housing Rescue Bill

  1. Rhonda said: “Jumbo FHA and Jumbo Conforming loan limits will be reduced from the current 125% of median home value to 115% of the median home value beginning January 1, 2009. As I mentioned, your days of a loan amount of $567,500 are numbered.”

    So, isn’t this a good reason to hold off on buying until the end of 2009? If we know Jumbo limits will be dropping, then it is a fair bet that prices over-all will come down (i.e. since it will be harder for people to get financing). Thus, if we know that prices will be coming down once Jumbo limits drop it would only make sense to buy AFTER the limits are reduced.

  2. Sniglet, it’s not an easy answer. As far as mortgages go, it depends on what your loan amount will be. I’m assuming your loan amount is under $520k if this is your strategy.

    Keep in mind that underwriting guidelines are getting tougher day by day and rates have been trending upwards.

    There are no easy answers.

  3. I suppose the real question boils down to this: is it better to buy when financing is easy but prices are high, or buy when financing is tough but prices are low?

    I suppose that California residents with poor credit and no cash were better off buying several years ago when they could get easy financing, even though prices were sky-high. Sure, the value of the home purchased in 2005 might be 30% less today, but there is no way that person would have been able to get a loan in the current environment had they waited.

    So, if you have lots of cash then it’s best to just wait till prices fall further, even if financing gets tougher. If you don’t have much cash, and bad credit, then get your loan while the getting’s good…

  4. Sniglet, it depends on how long they’re going to own. If only a short time (anything less than 5 years) a lower price would be better. But you can’t know where prices are headed just based on jumbo loan amounts.

  5. My inbox is beginning to fill up with impassioned pleas to fight the DPA elimination.

    My feeling is that FHA is the only ship afloat for borrowers that are struggling in the water.

    Does it make sense that we insist that FHA take on added risk by taking on borrowers thru the Nehemiah program that are 3 times as likely to default, as borrowers with DPA’s from other sources (family, employers, etc.)?

    I want to take some time to read the whole shebang, or at least get a reliable boil down of the bill.

    Re the reduction in Jumbos from 125% to 115%, I don’t think it will have much of an effect. They didn’t do much to begin with.

    What’s IS important is that FHA limits are indexed…

    Now, as prices go up or down, FHA can stay in the game for the middle and lower priced homes in the most expensive areas. Previous to the indexing, FHA was completely irrelevant in the highest cost markets (LA, SF, NYC, etc.).

  6. Well, this is the most obvious source, Nehemiah itself.

    Their continued existence is threatened, so expect a media blitz from them.

    They have some strong political allies, so there may be some traction.

    However, since it is enacted, and signed by the pres., it will actually take an “Act of Congress” to undo it.

    And just for clarification sake, this does not eliminate the effective 100% financing for FHA.

    FHA still allows true gifts to make up the 3.5%, from family members, employers, community based non-profits, churches, charities, etc.

    Down payment assistance from those sources have been performing reasonably well. Probably because there is a sense of obligation to the source (would YOU want to waste Uncle Bernie’s gift, and have to hear about it every Thansgiving?), and some amount of personal vetting.

  7. Roger, I’d much rather see a family member gifting the down payment than a DPA which is really the seller and in most cases, the buyer has paid more for the home than they would have with the gift.

  8. Here is the best summary of the bill I could find. It’s missing a few elements, but it covers the pats that most consumers would want to know about.

    I think the foreclosure rescue elements are such a narrowly targeted benefit that it will help very few people.

    The best elements are:

    Permanently indexing loan size limits, allowing the use of FHA, VA and Fanny/Freddy loans in high cost markets for median priced homes.

    National registration and criminal background check on ALL loan originators. About time!

    Increase in loan limits for reverse mortgages, and limitations on compensation and cross selling.

    Elimination of DPA’s funded by sellers.

    Questionable benefits are:

    Reorganization and increased oversight of federal agencies to oversee the housing markets.

    Assisting local governments to purchase foreclosed homes.

    $7,500 tax credit for first time home buyers. Again, a narrow target, that won’t help very many buyers.

    There have been worse laws passed this year.

  9. Kary said: “you can’t know where prices are headed just based on jumbo loan amounts.”

    True. But then this uncertainty should work BOTH ways. The pending expiration of the GSE Jumbo exemption shouldn’t be used as a justification to buy now or wait.

    It bothers me to see statements like Rhonda’s (“My purpose for this post is to hit it home what a great window of opportunity we have with FHA Jumbo mortgages which are only around until December 31, 2008”), which seems to be suggesting people should hurry and buy now because Jumbo loan availability might not be around for much longer. However, you could just as easily interpret the pending lapse of GSE Jumbo exemptions as a reason to wait to make a purchase.

    I suppose I am just reacting to the industry tendency to point to anything they can to provide more justification as to why people should get out and buy. In most cases these same data points could be interpreted in an equally valid opposite fashion (i.e. that you should wait because prices will fall further).

  10. Sniglet, it’s a simple fact that people with loan amounts from $520,000-$567,500 have until the end of the year to have a conforming jumbo or FHA jumbo rate. There is a huge difference (about 1% to rate on a larger loan amount) between the temporary jumbo rates and the actual jumbo rates…why not take advantage of that? If you’re not in that loan amount range–then this would not be a reason to take action.

  11. Sniglet:

    It would be un-true to type for a site devoted to real estate to become entirely bearish on the subject. Leave that to other sites.

    It’s better to have a site that treats real estate subjects seriously, with real information, even with an overtly bullish nature.

    Rhonda simply points out that your original question is complex.

    “I suppose the real question boils down to this: is it better to buy when financing is easy but prices are high, or buy when financing is tough but prices are low?”

    I would add a level of complexity to the question.

    Is it better to buy when prices are high, but financing is easy AND inexpensive….?

    It seems likely that future fixed rates (the next 3 years, let’s say) are going to be higher than they are at present, as the persistence of inflation works it’s way thru the market.

    Would you agree?

    I do not think the change of Jumbo limits in the Seattle area just will be that great, nor cause a significant effect. The significant portion of the law is to create a continually adjusting indexing system for FHA (it was already in place with the Fannie Mae).

    However, if you are contemplating a purchase in the next 6 months usiung a loan amount within that narrow range between $520K and $567K, it merits looking at the effect.

    Like many specialists, we look for the small advantage, as well as the big picture, for our clients.

  12. Roger writes: “It seems likely that future fixed rates (the next 3 years, let’s say) are going to be higher than they are at present, as the persistence of inflation works it’s way thru the market.”

    No, I think this is a low probability. What I see happening right now is deflation, with asset prices (e.g. stocks & real-estate) dropping in value, with a flight to the safety of t-bills keeping rates low. Commidity prices (e.g. energy, food, etc) will crash when the global economy finally slips into out and out recession, and we have extensive demand destruction (we are already seeing demand for oil drop as consumers change driving habits).

    In my view, we might see a slight bump in rates in the next few months, but that mortgage rates will remain very low for many years. That said, I also expect that mortgage qualification criterion will continue to become tighter, leaving fewer and fewer people able to qualify for any loan at all (regardless of rate).

  13. I’m working with Jumbo buyers who are going to the max “temporary” limit and using cash for the remainder of the down payment. The new limit means that they will either need to come up with $55,000 more to keep the mortgage at the loan limit or have a true jumbo rate.

  14. Sniglet says “I also expect that mortgage qualification criterion will continue to become tighter, leaving fewer and fewer people able to qualify for any loan at all (regardless of rate).”

    I agree. But this would add to the (I hate to use this word) argument that if someone is not “perfect” meaning that:

    -both borrowers have a mid credit score of at least 720.
    -minimum 20% down payment from a verified source
    -income easily documented with no hiccups in employment. Employed for at least two years in the same field with the same type of steady income (ie no changes to how one is compensated: salary, commission, bonus).
    -DTI’s of 28/38 (aprpox–this can very)

    BTW I love working with these types of clients. However, it’s not uncommon to work with people like this:

    – borrower receives promotion to management and their income is restructured with a much lower base and bonuses. No bonuses were received prior yet they have huge potential for greater income. Employer will not guarantee bonuses.

    – couple buying home. One spouse has a mid credit score of 650. They had no idea until meeting with the LO (freak blip on credit).

  15. Rhonda said: “There is a huge difference (about 1% to rate on a larger loan amount) between the temporary jumbo rates and the actual jumbo rates?”

    This might be true. However, this cuts two ways: 1) this makes it possible for people to afford more home (i.e. because their payments are lower) and 2) it keeps prices higher than they otherwise would be because it is cheaper for people to get financing.

    Clearly, the absence of these temporary Jumbo rates would not be a net positive thing for the over-all market. Why else would they have allowed this temporary exemption in the first place?

    To say that someone looking to buy a home in the Jumbo price-range should avail themselves of the temporary low rates is not much different than telling someone in 2005 they should buy with an Option ARM soon because those loans won’t be available in the future, and they won’t be able to afford as much house.

    In general, it is better to buy at a lower price even if financing is tougher and more costly. Your initial purchase price is critical. You can always refinance into a better rate later, but if prices drop there isn’t much you can do.

    I’d pay 12% on a $200,000 home anyday rather than 5.5% on $400,000 for the same house.

  16. Argh…I just lost my comment! Sniglet, your comment: “I also expect that mortgage qualification criterion will continue to become tighter, leaving fewer and fewer people able to qualify for any loan at all (regardless of rate).”

    I agree with you. This is actually a reason for many to consider buying (or refinancing) sooner than later…unless you are a perfect borrower.

    The perfect borrowers are:
    all borrowers on the loan have a mid credit score 720 or higher (per the lenders credit report).
    all borrowers have well documented employment that has not changed in the past two years and the income structure has not changed in the past two years.
    minimum down of 20% that is easily verified with at least 6 months of reserves in the bank after the transaction is closed.

    It’s not uncommon for me to work with this type of scenario:

    One borrower receives great promotion at work to management which requires them to have a lower base and potential for huge bonuses (most likely based on production). The employer will not guarantee the bonus/commission.

    One borrower is surprised to learn that there is an old collection or a late payment reporting on their credit, dropping the credit score to 680 (or under 720).

  17. Sniglet, I have a hard time w/your comparison refering to the option ARM, only because I never recommended that product, however I understand the point you’re trying to make…and you’re right.

    Products are disappearing or becoming so repriced that they are not attractive, such as the Flex 97 with LPMI. I have a client who was planning to buy using that program and now, she can’t. This is one less homebuyer, unless she decides to go FHA, in our market.

    Less products/programs and tighter guidelines means that fewer will be able to buy/refinance the longer they wait.

    My point is that I want people to be well informed that these are of available options. The choice is theirs–make it an informed one.

    I have buyers who are waiting out the market, and that’s fine too. They are highly qualified and shouldn’t have an issue with tightening guidelines. The unknowns in waiting is rate, available programs, available housing and just where prices will be.

  18. Rhonda said: “This is actually a reason for many to consider buying (or refinancing) sooner than later…unless you are a perfect borrower.”

    Actually, the prospect of even further tightening of lending standards is a good reason for non-perfect borrowers to stay out! If standards tighten further, it will only result in further hits to the real-estate market, and price declines. The very LAST thing a person with less than stellar credit or savings should be doing is saddling themselves with a massive mortgage on a depreciating asset.

    Are all those people who bought homes at peak prices with 100% financed, no-doc Alt-A loans better off because they at least got a house (i.e. when there is no way many of them could get any kind of loan today at all)? I would argue that many of them would have been far better off just renting for the indefinite future.

  19. By the way, I have a personal tale that is on point. My sister bought a house in Florida in January 2007 with an option ARM loan. There is no way she could have afforded the house without this kind of product. Well, recently she just vacated the home and let it go back to the bank, after her long-time partner lost his construction job and they couldn’t make payments. The home is now deeply under-water and there is no way they could dream of selling it.

    If my sister had not bought her home when she did, there is a good chance she never would have been able to get a house at all. Despite the fact that property prices have declined significantly in the last year where she lives, she would now be unable to qualify for ANY mortgage to buy one (even assuming she hadn’t bought the house she did and default). Who would lend to someone on her low income, and lack of savings, with an unemployed partner?

    I firmly believe she simply shouldn’t have been buying a house in the first place (and told her so), but she didn’t listen to her big brother’s advice…

  20. Sniglet, I don’t consider the examples I provided as “less than stellar” in comment 16.

    I have clients who did 100% financing a few years back and they are better off then they were before. Is this true for everyone who did 100% loans? NO way. A majority are still performing.

    People who bought using non-prime mortgages were given an opportunity that they didn’t have before those mortgages entered into the market and they certainly don’t have now. Those who are responsible are doing fine. Those who never were (and probably never should have bought) are not.

    People who bought using stated income where they did not state actual income (what I refer to as over-stated income loans) were nuts. I don’t understand how someone would say they make more than they do to qualify for a mortgage they NEVER could afford. A majority of these buyers may not make it either. This type of program is what I feel has been most damaging to the RE/mortgage industry.

  21. Sniglet, I’m sorry about your sister. It’s too bad she didn’t listen to you about option ARMs. I know I did my best to talk clients out of them and they would either listen to me and opt for a safer product or go to another LO who was more than happy to provide them a teaser rate and make big bucks by pumping up the margin. LO’s made a killing on that product and wholesale bank reps did their best as “pushers” to try to convince our company to use these programs as well.

    There are exceptions where the option ARM may make sense…I never did one or had one. Perhaps for an investor (although I would again for opt for a different program)…

    I have a family member who would not listen to my advice of waiting to buy and so they went to another LO and did 100% financing. In my opinion, they were not in the best position to do that at that time…they lost their home too. I feel real bad for them but it was not meant to be…and I wish they would have took my advice.

  22. Rhonda said: “It’s too bad she didn’t listen to you about option ARMs.”

    Yes, it is sad, and I feel terrible for her. I would like to point out, however, that it wasn’t the Option ARM per-se that was the problem. The core problem was that she and her partner never had the kind of stable income or savings that should be a pre-requisite for taking on the kind of mortgage liability they saddled themselves with.

    In any event, my earlier comments still stand: the prospect of future tightening of lending criterion should NOT be a reason for people to rush out and avail themselves of the current lending options. If anything the prospect of future tightening only provides ominous portent that prices will decline further (which inevitably happens when fewer people can get financing), and there are few people who would rather buy at higher prices today than lower ones in the future.

  23. Admittedly, in my career I’ve used Nehemiah only twice. Both were low priced properties in outlying areas. As I work the Eastside primarily, they are not a factor there. There are, however, many areas around the Region and US where programs like Nehemiah are a benefit to both seller and buyer.

    It seems to me that with the interest free loan now given by the government, the government is asking the taxpayers to do exactly what Nehemiah was doing. Sure they are asking the borrower to repay with no interest, but this program will need to be covered somehow by the taxpayer (and without charged interest it’s a sure fire money loser).

    So one argument is foreclosures are up 3 times for those in a Nehemiah. 3 times???? What does that mean? Is this 5000 borrowers, 10,000? 1,000,000? Can anybody quantify what this means?

    In a tough market, programs like Nehemiah give the Seller a way to help the Buyer into the home. Overall the discount to the Seller (including the modest transaction fee) is often less than than the eventual price reduction needed to sell the home..

    If the default rate is higher in Nehemaih, wouldn’t it be even higher with the added pressure of the borrow paying the loan back to the government create a higher default rate?

    Taxpayers paying the down-payment vs. Nehemiah

    My common sense alarm is going off.
    What am I missing?

  24. Greg, would you believe that I just closed my first Nehemiah transaction? I think because I tend to be against this program, people must have picked up my “vibe”. 😉

    To me, the real issue with DPA’s, like Nehemiah, is that in years past, the sales price was pumped up to cover the sellers additional contribution. Odds are, the seller was all ready paying allowable closing costs and the DPA was used to cover the buyers required 3% investment into the home. If the market was appreciating and the appraisal could support it, the price was pushed up. Yes the buyer now has a home with little to no money out of pocket (this 100% financing to me) but at the cost of a higher sales price.

    DPA’s remind me of the “hat game” at Safeco Field…the seller cannot provide the entire closing costs plus 3% buyer investment in a straight forward transaction; however by using a DPA, they are.

    I prefer the interest free loan for 15 years over Nehemiah (from a buyers standpoint–all though, I don’t like any bail out funded by tax payers either). In fact, I would rather see banks offer something along these lines instead of writing off mortgages. Resturcture the first (IF the borrower qualifies based on full doc) and do an interest free second (or low interest) with the note fully due upon sale…perhaps similar to some of the state bond programs.

    (I don’t have actual stats regarding DPA defauts).

  25. I agree, the program is a double edged sword. In a rising market, it can be (and is) abused. In a falling market, however, I can see where DPA’s might be a benefit.

    Why do you like the idea of a government sponsored interest free loan better? Doesn’t it put additional burden on the taxpayer? IF we have any DPA, why isn’t it better privatized?

    Really,how much did DPA’s in conjunction with an FHA borrower contribute to the run up in housing prices.

    Option arms and rest of the funny loans in the hands of the more affluent speculating on real estate and buying second homes on the back of their first home AND option arms, etc in the borrow who SHOULD have been in an FHA product are what caused the damage.

  26. Greg, DPA’s were sold that way to realtors and LO’s from DPA reps everywhere….”don’t worry…it’ll appraise” I heard over and over again. In addition to DPAs increasing the sales price, I saw sales prices being increased over the list price (back in the day) to pay for closing costs. That’s a lot tougher to get by an appraiser these days.

    I guess I would rather see (if we had to make a choice) that the DPA be gone and the seller be allowed to pay the whole enchilada without funneling money through a DPA.

    I don’t believe that FHA/DPA caused the damage to our markets.

    The most damaging products were over-stated income/no income verified (which essentially gave borrowers a blank check to bid up); subprime 100% which added buyers to the market (unless they would have qualified to be FHA–which many probably did but brokers didn’t have access and didn’t inform the buyer); option ARMs and interest only products where borrowers were qualifed at the lowest rate possible.

  27. Rhonda,
    I just reread the government offering.

    It is a tax credit.

    Still sponsored by the taxpayer.

    Do you know any of the details on when and how the credit will come back to the borrower?

  28. Oooh, so many comments!

    I don’t have any more data than I provided in previous comments regarding Nehemiah default rates. The actual number may be smallish, as FHA was in scant use until this year.

    I seriously doubt it was a factor in the run up in prices.

    The new government down payment assistance for first time home buyers (an up to $7,500 interest free tax credit really), seems at first glance to be so complicated, and narrowly targeted that it will likely be irrelevant. Window dressing, I think.

    The real separator is this:

    A borrower who can EITHER save up a 3 % (now 3.5%) down payment on their own, OR convince a family member, employer, or charitable organization to GIFT the down payment.


    A borrower that cannot.

    The former seem like folks who would try very hard to honor their commitments, thru good times and bad.

  29. Hi Greg, I’m assuming when they file their taxes and receive their refund. However, it will also be repaid by the borrower. So while it’s a credit by taxpayers, since it will be repaid back to the Gov, it this really “sponsored” by taxpayers?

  30. Sniglet:

    I’m not convinced that “Demand Destruction’ will rule the day, but it sure is a theory to watch.

    I have been pondering a question regarding home valuation vs rents, and I suspect that I might find more data from the good writers here.

    One: I suspect that rents are on the rise, at least in areas of decent employment and desirability, and where there is not a glut of rentable housing.

    Where can we find rental cost data?

    Two: If rents rise, and prices fall, won’t there be an equilibrium point, where either investors swoop in, or renters become buyers? Where is that historical equilibrium point?

    Three: Since the costs to investors (interest, primarily) will change, how will that affect that equilibrium point?

    Of course, the investor question is not the only thing affecting home values, but it has to be a factor, especially since investors may be the ones that signal the bottom of the market.

    Just wonderin’ out loud…..

  31. If rents rise, and prices fall, won’t there be an equilibrium point

    Won’t happen. I don’t know of ANY situation where there has been significant drops in housing prices at the same time that rents were rising. The Seattle market just hasn’t seen that much of a drop in real-estate prices yet, and thus there is no big hit to rents.

    In fact, rents always seem to rise right at the apex of the real-estate market: when renters start to decide prices are too expensive yet sellers aren’t feeling enough pain to start renting their homes out to stop the bleeding. But you take any market that has seen 20% plus drop in prices and their rental market is hurting from all the shadow inventory coming to rentals.

  32. Sniglet, I’m hearing that rents are rising now. Especially considering fewer home owners (due to less being able to buy and people losing their homes need to live somewhere).

    Where do you find unbiased stats on local rental markets?

  33. Rhonda said: “I’m hearing that rents are rising now”

    Yes, rental rates are rising in the Seattle area right now. However, we haven’t experienced much of a decline yet. I am merely saying that every story about rents I have seen from areas suffering large price declines indicate that life is rough for landlords there. I haven’t read one story yet about rising rents in a region experiencing significant price declines.

    I’ll grant that a couple years ago I was reading stories from places like San Diego, talking about how rents were finally starting to rise. But the stories about San Diego rents I have seen recently talk about how prices are dropping with all the increased supply from struggling home-owners letting out their properties. There also seems to be a trend of some people moving in with relatives or room-mate situations, which further slackens rental demand.

    If anything, rising rents is an indicator that a given real-estate market is about ready to tank. Rents seem to rise right at the very apex of the markets, just when appreciation has stopped, yet depreciation hasn’t really picked up.

  34. The tax credit for qualified 1st time buyers will be a tiny drop in the bucket.

    The real cost will be in the ongoing “tax/surcharge” imposed on the GSE’s to support low income subsidized rental housing, and in the money allocated to local governments to purchase foreclosed and vacant properties.

    That’s where the big money will go.

  35. As a new first-time homeowner (just bought last month), I am really pleased to hear about the $7500 tax credit. I understand that it is essentially a 15-year zero-interest loan ($500 a year starting in 2010 or paid once I sell), but if I apply that money to the principal on my mortgage, won’t that end up saving me a lot of money in interest in the long run?

    Can anyone tell me why this might be a bad deal for a new homeowner? Why might I not want to take advantage of it?

  36. This bill will do very little to help forestall foreclosures.

    There are a few good reforms in the bill, but they are totally overshadowed by the provision in the bill that allows an expansion of the US debt ceiling by $800 billion, so that the Fed can invest money in Fannie and Freddie.

    This is why I opposed the bill. Tax payer money will be going to these private institutions to buy stock and backstop their failure. This is unprecedented in US history. These companies can still lobby congress with tax dollars to get more tax dollars. They can still have 21 executives making $1mil+ salaries.

    Why would anyone by US Treasuries with this level corruption in our financial system? They won’t – therefore treasury rates will rise, and so will interest rates. bye-bye housing market. Congress is either totally corrupt to allow this, or complete idiots.

    $800 billion. We’ll be paying it for generations and the housing market and economy will still tank.

  37. Nolaguy:

    There’s a US debt ceiling?

    No sarcasm, it just hasn’t seemed like there has been, at least since the Bush war.

    Are you suggesting that we all would be better off if the government let Fannie and Freddie go BK?

    Doesn’t seem like that would be a good idea.

  38. I actually tried scanning that bill and it is covers a huge range of subjects besides housing… energy, low-income housing, restructuring of government housing agents …on and on


    Tucked away inside is a proposal for national licensing of ALL loan originators. This is good news! Our local Option Arm Queen who specialized in selling those nasty products to first time homebuyers is hiding away as an LO in a nationally known Bank branch. I’d like to see her leave the loan originating biz.

  39. Hi Rhonda – It was part of the Senate amendment S5882 under Title V. I am assuming this was attached to HR3221 when it came out of the Senate and went to the President for signature. I’ll see if I can’t verify this. Thanks.

  40. Okay – per the Thomas Guide, the “enrolled” bill that was passed by both the Senate and the House included several amendments. You will find the Licensing requirements in Title V starting at Section 1501. The whole sections gets into some specific details about the licensing requirements and procedures. Hope this helps.

  41. Greg wrote: “Absolutely. The government fronting the money and then collecting no interest.”

    But they’ll get tax money when the money is spent. So for example, if the taxpayer uses the money to paint their house, the painter and paint company will pay income tax.

  42. “Are you suggesting that we all would be better off if the government let Fannie and Freddie go BK?”

    If they need to be backstopped by the US Taxpayer then they should no longer be private corporations. Wipe out the shareholders and put them into receivorship of the US Govt.

    But what this bill did was bailout the investors – not the US homeowner.

  43. Roger said: $7,500 tax credit for first time home buyers. Again, a narrow target, that won’t help very many buyers.

    Does anyone have any idea how many first time buyers typically buy in any given year? It would be an interesting stat to look at.

  44. Julia:

    I reading the bill now, and the way these things are written is not always that easy to decipher.

    The credit has income qualifiers (the credit begins to go away after $75K/yr), but it does look like it would apply retroactively to April 09, 2008.

    You certainly can save interest in the long run by using the credit to pay down extra principal. Of course, you could also invest the tax credit elsewhere.

    Your tax bill in successive years increase, until it is paid back.

    In short, I do not see a down side to taking advantage of it. I’m just less certain that it will spur purchases like some have hoped, when the main impediment for first time buyers has been the down payment hurdle.

  45. Julia, I would also consider using the interest free loan to pay off debt (if you have any) to see where you’ll get the most bang for your bucks, keep as an emergency savings account or invest.

  46. Mortgage News Daily has a great article regarding the tax credit/loan:

    The main downside to this provision is that it will require filing a tax return regardless of the status of the homeowner. The credit is added to any refund due the taxpayer and loan payments are deducted from refunds or added to the tax obligation. The credit and the obligation to file a refund to collect and repay it could affect seniors living on fixed incomes and Social Security and may require using a professional tax preparation service. Taxpayers who neglect repaying the “loan” will be subject to all of the usual IRS penalties for non-filing and non-payment.

  47. Uncle Sam, you have been preapproved for a 10 trillion dollar purchase!

    I just found the section increasing the public debt!


    Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and
    inserting in lieu thereof $10,615,000,000,000.

    It doesn’t reference the previous number.

  48. Rhonda:

    A couple of clarifications.

    I believe the new Risk Based pricing on FHA will stay in effect until October 1, 2008, then temporarily stopped until Septeber 29, 2009.

    Also, the increased limits for reverse mortgages and VA loans will not go into effect until a HUD mortagee letter comes out, in about 60 days.

    Still trying to find out how the tax credit will be treated. At issue is whether is a refundable credit or non-refundable credit (does the IRS pay you more than you owe, or not).

  49. Roger, I noticed that on my FHA Jumbo approval findings yesterday…so for a couple months, those with better credit will get better pricing w/FHA and those w/worse credit will worse.

  50. What’s the current status of reverse mortgages in Washington? I read the statute that possibly prohibits them, and like the distressed property law it’s a mess. I refers to two other sources, neither of which is a statute. I don’t think I’ve ever seen such a thing.

    But anyway, do lenders feel they can do reverse mortgages given the law on negative amortization?

  51. Kary, I think a lot of the last minute legislation that was passed by our state is a MESS. I attended a DFI mortgage broker meeting where lenders asked if we would still be able to reverse mortgages and we were told yes…then to find out that we cannot since they are truly negative am. loans. It really proves that the legislation was created and passed by people who are ignorant about our industry. This is the same mess that has caused our company, which is decent sized correspondent lender directly endorsed by HUD (we’re not a fly by night broker), which was licensed under the MBPA to become licensed under the CLA. The CLA currently does not have the same restrictions as MBPA so LO’s do not have to be licensed. They basically undermined all their (and our) efforts from the past year.

  52. Rhonda, you’re more polite than I am. The problem isn’t that the legislation is written by people that don’t know about the industry. The problem is the legislation is written by people that are incapable of drafting legislation on any topic.

    So is anyone writing reverse mortgages in Washington?

    If not, yet another way the legislature in their finite wisdom took away what is a good choice for many people (the other being the choice to accept $5,000 in lieu of receiving nothing in a foreclosure which for some people is actually a great choice).

  53. Kary:

    Funny you should ask about reverse mortgages. There have been some changes, but they are still widely available, and have prospects for improvement.

    Some non-depository lenders have pulled out.
    Lender’s Leads Solutions, (with the Robert Wagner spokesperson) for instance ended June 12th. I was in the middle of a transaction with them, and made the (unannounced) cut-off by only 8 hours!

    Financial Freedom (a division of Indy-Mac) is still going strong, as is Countrywide and several others.

    The distinction seems to be how the lender interprets the new law.

    Prospects for improvement are in the expanded limits. At present, the highest home evaluation is limited to $362,790, and the loan size limit is essentially 2/3 of that.

    That limit will go up substantially in about 60 days, to $417,000 and possibly higher.

  54. Not sure why Rhonda and I have different interpretations in this regard.

    I plan to do many reverse mortgages going forward, and don’t think our company will be in violation of the law.

    That said, there were certainly a lot of unintended consequences from the recent eruption of legislation.

  55. Careful, Kary…we may just have to nominate you to an elected position, (rotten pay, long hours, growing enemy list…)! 🙂

    But seriously, this year has made me realize that I must pay much more attention to the legislative process, and devote time and dollars to the politcal process, or suffer the consequences.

  56. Roger and Kary, this proves how bad the law is written (reverse mortgages) many companies are having a challenging time interpreting and guessing what was intended and what is legal.

  57. It didn’t affect me, so I didn’t bother to dig into the meaning of the legislation. Here are the statutes:

    RCW 19.144.050
    Negative amortization — Limitation.

    A financial institution may not make or facilitate a residential mortgage loan that includes any provisions that impose negative amortization and which are subject to the interagency guidance on nontraditional mortgage product risks and the statement on subprime mortgage lending.

    “Interagency guidance on nontraditional mortgage prodict risks” and “statement on subprime mortgage lending” are defined terms:

    (11) “The interagency guidance on nontraditional mortgage product risks” means the guidance document issued in September 2006 by the office of the comptroller of the currency, the board of governors of the federal reserve system, the federal deposit insurance corporation, the office of thrift supervision, and the national credit union administration, and the guidance on nontraditional mortgage product risks released in November 2006 by the conference of state bank supervisors and the American association of residential mortgage regulators.

    (12) “The statement on subprime mortgage lending” means the guidance document issued in June 2007 by the office of the comptroller of the currency, the board of governors of the federal reserve system, the federal deposit insurance corporation, the office of thrift supervision, and the national credit union administration, and the statement on subprime mortgage lending released in July 2007 by the conference of state bank supervisors, the American association of residential mortgage regulators, and the national association of consumer credit administrators.

    So basically you’d need to read both those things to determine whether a reverse mortgage was illegal. I haven’t read either, but I’d suspect that you could probably come to different interpretations of the legality if you did. The cautious and safe approach would be to simply quit doing them.

    BTW, the legislature could have avoided this issue entirely by having this definition include reverse mortgages and then defining reverse mortgage:

    (10) “Residential mortgage loan” means an extension of credit secured by residential real property located in this state upon which is constructed or intended to be constructed, a single-family dwelling or multiple-family dwelling of four or less units. It does not include a reverse mortgage or a borrower credit transaction that is secured by rental property. It does not include a bridge loan. It does not include loans to individuals making or acquiring a residential mortgage loan solely with his or her own funds for his or her own investment. For purposes of this subsection, a “bridge loan” is any temporary loan, having a maturity of one year or less, for the purpose of acquisition or construction of a dwelling intended to become the borrower’s principal dwelling.

  58. Roger wrote: “But seriously, this year has made me realize that I must pay much more attention to the legislative process, and devote time and dollars to the politcal process, or suffer the consequences.”

    I agree fully on this. I’m going to track legislation much closer, but in the case of the distressed property law I don’t think that would have been enough, due to the last minute changes.

    Oh, and BTW, if nominated, I will not run, if elected, I will not serve. 😀

  59. # 24 Sniglet, your sister may have lost her home due to being in a loan she and her partner never should have been in; but maybe this life lesson will help her find her way towards having a better job so she can financially be more stable, and someday own again.

    TV and the internet have gone a long way towards the building of “desire” of what our society expects towards more and more material things. She and many others took the bait of the 100% financing because she wanted what she was taught that she should & could have. And her mortgage company very clearly told her “you can have this house, sign here”.

    During those years, how could the unsophisticated know they couldn’t be part of boom times too?

    How many popular TV shows are there that focus on wealth and real estate? Far too many.

  60. Speaking of the political process, the legislator who was responsible for most of the legislation regarding lending, Sen. Weinstein, is not returning to the legislature. Despite being a lawyer, clearly the laws were not written as well as they should have been. I cannot believe any legislator intended to eliminate reverse mortgages in the state of Washington.

    Marcie Maxwell is running for the vacancy as State representative in district 41 (mine…NE Renton, Mercer Island, Newcastle). She has been on the Renton School board since 2001, and has been a Realtor for 19 years.

    At least she should understand issues related to the field of housing and education. Couldn’t do a whole lot worse than Weinstein did.

  61. I worked with Marcie Maxwell on the Greater Renton Chamber Community Development Committee for many years. We created a lot of great programs in that committee including the Business and Educators Exchange, New Teacher Breakfast and (one of my favorites was) the Renton Tour where we toured agents from outside Renton around the City…they were always amazed. 🙂 I was proud to be involved since I was “born and raised” in Renton (go HAZEN)!

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