The housing legislation provides for increased loan limits for manufactured housing for low and moderate income homebuyers.  In an attempt to prevent or forestall mortgage foreclosures, the bill provides for credit counseling, home mortgage counseling, or any counseling deemed appropriate.

   The mortgage foreclosure protection for servicemen extends the period of time prior to foreclosure of the mortgage from 90 days to nine months.  The stay of proceedings is also extended to nine months.  This provision will expire December 31, 2010.

   Under the Emergency Asistance Redevelopment for Abandoned and Foreclosed Homes section of the bill, a total of $4,000,000.000 will be made available until expended to states and local governments for redevelopment of abandoned and foreclosed homes.

   The Secretary of the Department of Housing and Urban Development will construct  a funding formula within 60 days of enactment of the bill.  Most of funds will go to low and moderate income metropolitan areas or areas deemed the areas of greatest need.  This may be the areas with the highest subprime mortage related loans and/or the highest foreclosure rates.

   A funding mechanism will be established so that these homes can be purchased to sell, rent, or redevelop.  Blighted areas will be demolished.  All properties purchased must be purchased at a discount to the appraised value.

     Additionally, $30,000,000 will be set aside for neighborhood reinvestment for the 100 metropolitan areas which are suffering the most from foreclosures. 

      The Mortgage Disclosure Improvement Act, also known as Truth in Lending, provides that full disclosure be made and that warnings be made to homeowners by lenders about foreclosure rescue scams.  Lenders must send the notices to homeowners who are deliquent by two months in their payments. The notice must contain the following statement in 14 point bold type in both Spanish and English:

    “Mortgage foreclosure is a complex process.  Some people may approach you about  saving your home.  You should be careful about any such promises.  There are government and non profit agencies you may contact for helpful information about the foreclosure process.  Contact your lender immediately at —-, call the Department of Housing and Urban Development Housing Counseling Line at (800) 569-4287 to find a housing counseling agency certified by the Department to assist you in avoiding foreclosure, or visit the Department’s Tips for Avoiding Foreclosure website at http://www.hud.gov/foreclosure for additonal assistance.”

   Any homeowner signing a contract with a foreclosure rescue person or company has a three day right of recission. 

     Veterans disabled before discharge or release who must move because of a foreclsoure of a rental property can have their move paid for by the government. 

   The approximate 700 page housing bill constains provisions for housing tax incentives , low income housing tax credits, first time home buyers credit against the tax, and tax changes regarding Real Estate Investment Trusts and Health Care REITS.

    The bill, which is now law, is now being interpreted by the various agencies designated to carry out and enforce the legislation.  These series are only a snapshot of the the true scope of the law.

Resources:  http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

http://www.fha.com/

http://www.hud.gov/

   Title VI of the legislation is the Hope for Homeowner Act of 2008 and is a voluntary program between exisiting loan holders and home owners.   It is designed to “insure refinanced loans for distressed borrowers and to support long-term sustainable homeownership”.   It is established under the Federal Housing Administration (FHA).  HOPE is an acronymn for Home Ownership Preservation Equity.

   By reducing the principle (sic)  balance and reducing the interest rate on the mortgage, the goal of HOPE is to help home owners avoid foreclosure and stabilize the mortgage markets by bringing transparency to the value of assets, based upon mortgage costs. 

   The timeframe for HOPE is October 1, 2008 through September 30, 2011.   FHA has a commitment to insure any eligible mortgage that has been refinanced.  Homeowners must show a lack of capacity to pay their existing mortgage and have only one residence which is their principal residence. 

   The debt to income ratio of the home owner must be 31% or more.  (To calculate, take the gross income and multiply by 31%, then divide by 12 to derive the monthly mortgage payment.  For instance, a  homeowner earning $60,000 annually would have a minimum of $18,600 in annual mortgage payments or $1550 a month.) This does not include taxes and insurance which are often included in the mortgage payment.

   To qualify, the homeowner must demonstrate a reasonable ability to to make payments on the new mortgage which cannot exceed 90% of the appraised value of the property.  This would be an appraisal today, not the appraisal upon which the original mortgage was based, done by a certfied appraiser.

   Any second lien holder (second mortgage holder) must agree to extinguish any liens by reaching an agreement with primary mortgage holder.   Funds come from the  new mortgage insured by FHA.  However, those funds may not be enough to cover both loans so agreement must be reached.   Only one mortgage will be insured by FHA.  However, the second lien holder may share in any future price appreciation of the property.

   New mortgages cannot exceed 132% of the FHA limit.  Loans must be single rate fixed and at least 30 year mortgages.  No adjustable rate mortgages are acceptable under the program.   Homeowners utilizing this program may take no second mortgage for five years. 

   Lenders must verify the income of persons applying for HOPE with the tax returns for the most recent two years.  Penalities including jail of no more than five years and/or fines are prescribed for any type of mortgage fraud for any person who has an interest in the real estate transaction.  This includes the mortgage broker, banker, real estate broker, appraisal management company, appraiser, or any employee who tries to influence the appraisal or otherwise commit mortgage fraud.

   The insurance premium of 3% of the original insured principal obligation will be paid to FHA and an annual premium of 1.5% of the insured principal balance.  There is a five year phase in for equity in the home to be shared with the mortgagor and FHA. Within one year of sale or refinancing after obtaining such a loan, the homeowner will owe 100% of the equity,; between 1-2 years, 90%; 2-3 years, 80%, 3-4 years, 70%,4-5 years 60%, and five years or after 50%.

   The Home Ownership Preservation Entity Fund will be used to carry out mortgage insurance obligations.  The Government National Mortgage Association (GNMA or Ginnie Mae) is authorized to issue HOPE bonds to fund this program.  No more than $300,000,000,000 in bonds may be isssued to fund this program.

Next:  SAFE Mortgage Licensing Act, Foreclosure Prevention, FHA Modernization Act of 2008

  Resources: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

http://www.ginniemae.gov

http://www.fanniemae.com

http://www.freddiemac.com

    One of the provisions of the Housing and Economic Recovery Act of 2008 is to provide funding for programs approved by the Department of Housing and Urban Development (HUD) to increase the financial knowledge and decision making capabilities of prospective homebuyers.

   The programs will be designed to help people learn to establish monthly budgets, build personal savings for major purchases, reduce debt, implement financial stability and teach people to set and reach financial goals. 

   Additionally these programs will be designed to help people understand their credit scores and the relationship between credit history and credit scores.  Building savings for long term and/or short term goals is also an objective.

   Grants will be distributed for approved programs.  Documented behavioral changes in savings and spending patterns must be evident.  Additionally, five pilot programs will be authorized and tracked for effectiveness.

   The legislation also provides for some people working within HUD to transfer to the Federal Housing Finance Agency without loss of pay, status or tenure.  All benefits are to be equivalent between the two agencies.

    The Director will establish the amount of critical capital necessary for the Home Loan Banks.  Capital requirements will be established by the Director for adequately capitalized banks, undercapitalized banks, significantly undercapitalized banks and critically undercapitalized banks.  The capital reserves of the banks will be monitored and remedies established for those banks failing to meet the requirements.  Supervisory actions are spelled out including conservatorship and ultimately receivership for critically undercapitalized banks.

    Provisions for claims, disposition of assets, notification of potential claimants, and the legal procedures to be followed are delineated in the legislation. 

     Title II concerns the Federal Home Loan Banks whose job is to provide liquidity to member banks, encourage affordable housing and community development, and provide a capital structure.  Semi annual reporting to Congress by the Director regarding these objectives is mandated.

     The legislation abolishes the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development and tranfers many of these objectives to the Federal Housing Fianance Agency.   As with other areas of HUD where employees will be transferred, status, pay, and benefits will not be impacted.

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

Next- HOPE for Homeowners, S.A.F.E. Mortgage Licensing Act, and Foreclosure Prevention

Related Stories Today:

Fannie Mae and Freddie Mac In the News

http://www.investors.com/editorial/IBDArticles.asp?artsec=5&issue=20080806

http://www.investors.com/breakingnews.asp?journalid=78208990&brk=1

     The Housing and Economic Recovery Act of 2008 contains goals for residential low income, very low income and housing for families residing in low income areas. These goals will be set by the Director of the Federal Housing Finance Agency within a “reasonable time table”.

    The legislation describes the goals as a percentage of single family money market mortgages financed.  Targets are determined by national housing needs, economic, housing demographics and conditions, and the peformance and efforts of the lender.   Mortgage financing of one to four owner occupied units will count towards these goals as will multifamily housing financed by tax exempt or taxable bonds if they meet certain requirements.

    Multi-family affordable housing units includes mortgages for very low family income housing and housing which is eligible for assistance from Section 42 of the Internal Revenue Service tax code.  Additionally, smaller units and those units 5 to 50 units may be eligible for up to $5,000,000.

   Owners of very low income owner occupied units cannot have income more than 50% of the median income level of the area.  The same applies to rental units with adjustments for family size.  However income must be at least 30% of the median level for the area.  Extremly low income is considered not more than 30% of the median income level of the area.

   According to the legislation, there is a duty to serve underserved markets which include; very low, low, and moderate income families.  Fannie Mae and Freddie Mac are expected to purchase securitized mortages which may not carry the same rate of return as other mortgages. 

    In an effort to provide very low, low and moderate income housing, new products are to be developed for the secondary market for manufactured housing with flexible underwriting guidelines, as well as affordable site built housing.  These guidelines will also apply to Section 8 housing, below market interest rate mortgage programs, housing for the elderly, the disabled, the homeless and rural rental housing.

     Provision is made for monitoring, enforcement and compliance of these housing goals.  The Director determines whether each enterprise (Fannie Mae, Freddie Mac, Federal Home Loan Banks and/or affiliates) have met the goals.  If not met, the Director can issue a cease and desist order, issue civil monetary penalties, or require the enterprise to submit new housing goal plans.

   For each dollar of unpaid principal balance of new total business, Fannie Mae and Freddie Mac must set aside 4.2 basis points.  (A basis point is 1/100th of a one point.)  Translated, this means that on a $100,000 unpaid balance, 4.2% must be set aside or $4.20.  A total of 65% will go to the Secretary for HUD to fund the Housing Trust Fund and 35% will go to the Capital Maget Fund.

    The purpose of the Housing Trust Fund is to increase the supply of rental housing for low, extremly low, and very low income families including homeless persons, according to the legislation.  In 2010 and subsequent years, grants to state housing finance agencies, housing community developments, and tribally designated housing entities will be awarded on a needs based formula.  A minimum of $3,000,000 will be awarded to each state.

      Grants can be used for production, preservation and rehabilitation of housing with no less than 75% of the funds going to extremly low income families and 25% going to very low income famlieis.  Down payment assistance, closing costs, and interest rate buydowns are permitted for extremely low and low income buyers.

      The Capital Magnet Fund is designed to attract private capital for increased investement in affordable housing for extremely low, very low, and low income families.  Funding may be given for community service facilities such as day care centers, workforce development centers and healthcare clinics to stablilize or revitalize low income areas or underserved rurual areas.    Provisions are made for the Secretary of the Treasury to report to Congreess and the public.

Resources: 

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

Section 8 United States Housing Act of 1937        

Section 236 of National Housing Act

Section 221 (d)(4) National Housing Act                

Section 202 of Housing Act of 1959

Cranston-Gonzalez National Affordable Housing Act    

 McKinney-Vento Homelss Assistance Act

Rural Rental Housing Program SEction 515 Housing Act of 1949

http://seattletimes.nwsource.com/html/opinion/2008082463_broder31.html

Next:  Financial Education and Counseling, HUD Employees, and Critical Capital Levels

    Congress passed the “Housing and Economic Recovery Act of 2008” and President Bush signed the legislation July 30, 2008. The bill, which can be read in it’s entirety at

  http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf

  establishes the Federal Housing Finance Agency.

       The newly created agency is an independent agency of the Federal Government with authority over the Federal National Mortgage Agency (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks and Office of Finance.  The Director will be selected by the President with the consent of the Senate and serve for a five year term.

     A Federal Housing Oversight Board is created consisting of the Secretary of the Treasury, the  Secretary of the Department of Housing and Urban Development, the Chairman of the Securities and Exchange Commission, as well as the Director.  The Board reports to Congress not less than once every three months.   An Ombudsman will be appointed by the Director to hear complaints and appeals.

     Oversight guidelines and standards will be created by the new Agency including regulation of capital requirements, portfolio monitoring, reporting fraudulent loans, compensation, and golden parachutes. 

    Section 1124 increases the Fannie Mae and Freddie Mac conforming loan limits to $417,000 for a single family home, $533,850 for a two family home, $645,300 for a three family home and $801,950 for a four family home.

    Each year, housing prices will be adjusted according to an index determined by the Director of the Federal Housing Finance Agency.  If the index shows a decrease in value, no adjustment will be made. 

   In areas of higher property values, the amount will be adjusted to the lesser of 150% of the limit or an amount equal to the median price of that type of housing within that area. 

   The annual housing price index will be determined by annual housing reports which contain; demographic information, types of loans, creditworthiness of borrowers, loan to value ratios including second liens, race, gender, income levels, underserved markets,  and the purchase price of the property.  Comparision of characteristics of all loans including sub prime and jumbo loans will be included.

    The Director will report by October 30 the the Committee on Banking, Housing and Urban Affairs in the Senate and the Committe on Financial Services in the House to apprise legislators as to how Fannie Mae, Freddie Mac, the federal home banks and the Office of Finance are achieving the goals set forth by the housing goals of this legislation.

    http://www.fanniemae.com

    http://www.freddiemac.com/

Next:  Housing Goals- Low Income, Very Low Income, Families residing in Low Income Areas