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Bush Signs Housing and Economic Recovery Act

July 30, 2008

This morning President Bush signed the Housing and Economic Recovery Act of 2008, which will have major ramifications on California homeowners. The purpose of the legislation is to assist in stabilizing the economy and help stem foreclosures. It also provides support to first-time homeowners. Below is information on the provisions of the bill, per an email I received this morning from the California Association of Realtors.

It is estimated that some 400,000 homeowners facing foreclosure (many of whom live in California) may be affected by this bill, as it will allow them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan.  The bill also will permanently increase FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas like Orange County.

The conforming loan limit has been permanently increased to $625,500 – less than $729,750 temporary limit provided for in the Economic Stimulus Act of 2008, but a major move from the previous limit of $417,000. This will allow California homeowners to refinance their loans into safe, affordable loan products and allow first-time home buyers to enter the market in places like coastal Orange County, where $417,000 buys you very little.

The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an area’s median home price, up to $625,500.  For FHA, the new loan limit will be the greater of $271,050 or 115 percent of an area’s median home price, up to $625,500.  Both new loan limits will be effective at the expiration of the Economic Stimulus limits on December 31, 2008.

Other provisions in the bill are:
•  A temporary increase in mortgage revenue bonds to refinance subprime mortgages.
•  New regulator for Government Sponsored Enterprises to restore investor confidence in GSE loans and help the market and economy stabilize.
•  First-time home buyer tax credit, which allows first-time home buyers to receive a tax refund worth up to 10 percent of a home’s purchase price, up to a maximum of $7,500.  The refund serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years.
•  Temporary raise in the loan limit for the Veterans Affairs home loan guarantee program to the same level as the economic stimulus limits until the end of 2008.
•  Adjustment to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), allowing sellers to provide the non-foreign affidavit to a qualified closing entity and not just the buyer.
•  The setting of minimum requirements for mortgage originators, which mandates fingerprinting of loan originators and establishes a nationwide loan originator licensing and registration system.  The requirements do not apply to those only performing real estate brokerage activities unless they are compensated by a lender, mortgage broker, or other loan originator.  States will have the ability to implement more stringent laws.
•  The creation of a National Affordable Housing Trust Fund to help cover the cost of the FHA rescue plan for the first five years and develop affordable housing in subsequent years.
•  The Treasury Department’s proposal to create a federal backstop program to insure the financial well-being of Fannie Mae and Freddie Mac.
•  The FHA’s inability to insure loans that utilize a seller-funded down-payment assistance program.  Down-payment assistance from family, employers and other nonprofits is still allowed.
•  The Community Development Block Grant Programs’ $4 billion allotment for communities to purchase and refurbish foreclosed homes.

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