New Housing Law Offers Relief, Benefits to Home Buyers

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This morning, President Bush signed into law the Housing and Economic Recovery Act of 2008, legislation aimed at shoring up the housing market in the United States and offering current homeowners with troubled mortgages and potential homeowners with significant assistance.

Of most interest to people who do not own a home but have been thinking about it is a $7,500 tax credit to qualified first-time home buyers who purchase a home between April 9, 2008, and June 30, 2009. That’s a tax credit, meaning those who qualify will receive a dollar-for-dollar reduction in what they owe the year the credit is taken against their income taxes. The credit does have to be repaid, but it is done over 15 years and payments don’t start until tax returns files two years after the credit is taken.

In the Memphis-area market first-time buyers make up a larger share of all buyers than the national average, which means a larger number of people locally stand to benefit from the credit. Add to that the affordability of Memphis-area real estate and it adds up to an outstanding opportunity for first-time buyers.

Here’s the fine print:

  • The credit amount can be 10 percent of the cost of the home purchased, not to exceed $7,500.
  • Any single-family property (including condos) that will be used as a primary residence is eligible.
  • The full amount of the credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 for joint filers). The amount of credit available gradually phases out as adjusted gross income reaches $95,000 for a single filer and $170,000 for joint filers.
  • The credit is repayable over 15 years (without interest) in equal installments of 6.67% of the credit or when the owners sell the home, assuming there is sufficient capital gain from the sale. Repayment does not begin until two years after the credit is claimed.

More detailed information on the tax credit, including FAQs and answers, is available at this site created by the National Association of Home Builders.

In addition to the tax credit, the law includes some other significant changes that will help those homeowners facing foreclosure, reinvigorate the market, and strengthen the overall economy. Some of the highlights:

Government Sponsored Enterprise (GSE - Fannie Mae and Freddie Mac) reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. For the Memphis area the conforming loan limit was temporarily raised to $271,050 with previous legislation but this law now makes that increase permanent.

FHA reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The downpayment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.

GSE stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

Mortgage revenue rond authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

National Affordable Housing Trust Fund – Develops a trust fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.

Community Development Block Grant Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.

Loan originator requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator

Posted by Scott Sherrin at 12:49 pm

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3 Responses to “New Housing Law Offers Relief, Benefits to Home Buyers”

  1. floy blustein` Says:

    Scott, has anyone looked into the exposure we agents have when we submit a contract that is verbally accepted and voided when the foreclosure bank submits their so called addendums. I recently sold a foreclosure and the bank did not want to turn on the water for buyers to inspect pool. I had to point out that our listing contracts contained a clause that said sellers had to have utilities on for inspections??>?
    floy

  2. Scott Sherrin Says:

    I imagine issues like this are becoming more prevalent with the increase in foreclosure sales. If you haven’t already, I recommend you pose this question to the TAR Legal Hot Line for an authoritative answer: (800) 899-5297.

  3. Joe Spake Says:

    The banks’ inflexibility is a major issue in the ever-increasing inventory of REO properties. There are simply not enough investors out there willing to take properties “as-is, where-is”. The banks need to be more cooperative with ready, willing and able (owner-occupant) buyers, trying to buy following conventional contract expectations, rather than the banks’ arbitrary and inflexible rules. There should be no governmental relief for banks through the GSEs until they do their part to get their inventories sold.

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