Explaining the New Housing Bill

Many people are still a little confused as to what the new housing bill aims to accomplish. It seems to be a very positive move, except for the removal of down payment assistance. This bill will save hundreds of thousands of homeowners.

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. Its estimated that it will refinance somewhere in the neighborhood of $300 Billion in worth of loans into FHA 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.

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

Down Payment Assistance still has a chance

Just as we thought Down Payment Assistance was all but done, there comes a fight from within Congress to keep it. Down Payment Assistance is used to help low and middle-income consumers who are trying to obtain a home loan. It is mostly commonly associated with FHA loans. Under the previous law FHA loans require borrowers to put 3% down however it allows for seller paid Down Payments. The new housing bill that was signed into law last week eliminates Down Payment Assistance. It is estimated that Down Payment Assistance has helped over 700,000 people realize the dream of home ownership. Congress introduced bipartisan legislation, H.R. 6694 that would reauthorize and reform charitable Down Payment Assistance.. The legislation, sponsored by U.S. Reps. Al Green (D-TX), Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT) reauthorizes and reforms charitable down payment assistance funded in part by sellers.
The Green-Miller-Waters-Shays plan would re-authorize and reform non-profit down payment assistance and secure it as an allowable source for FHA borrowers. The bill seeks to ensure that providers of the down payment assistance operate in a transparent manner to guard against conflicts of interest. The bill also includes language to ensure that FHA maintains its financial stability by permanently authorizing the Secretary to assess higher premiums to higher risk borrowers.