New Housing Bill

Despite reports by the media, there really isn't much *direct* benefit to consumers. I'm not knocking reporters at all, but the bill is so large, covers so many topics, and often requires an intimate knowledge of industry problems, that I think many journalists focus on the FHA bail out and less on the other Titles in the Act.

There are three key indirect benefits:
1.) The GSEs (Fannie/Freddie) get new overseers (this means abolishing several Federal agencies in favor of a new one - when is the last time Congress abolish a Fed Agency?), tighter controls by the Executive Branch, and a number of benefits designed to shore up investor confidence in the secondary market. This is by far the largest regulatory change in the secondary mortgage market since the formation of Freddie Mac back in '74. No direct benefit to consumers, but in a round about way it might keep retail mortgage interest rates from jumping into the double digits.

2.) National licensing for ALL mortgage loan originators. Banks and direct lenders have previously been exempt from any state licensing, background checks, and examination of character/ethics. Despite intense lobbying by the nation's largest banks, bank employees will have to meet minimum standards of education, pass a criminal background check, be fingerprinted, and demonstrate solid credit character.

You might recall a recent article in the Miami Herald that discovered some 10,000 convicted felons were employed as loan originators in the state of Florida since 2000. The majority avoided individual licensure by working for banks and direct lenders, whose employees are exempt from Florida's licensing requirements. No mas, hombre, no mas. The indirect benefit here is that borrowers will be protected from loan originators who haven't demonstrated expertise (by passing a license exam) or avoided a criminal background check.

3.) Community Grants - The Act has a title that provides $4 billion to local communities to buy up vacant foreclosed homes. The grants can be used to help neighborhoods with a large rate of foreclosure, thus helping protect the home values of home owners who have paid their mortgages on time.

A couple of direct benefits:
1.) Tax credit for first time home buyers. This might be useful for FHA down payments. We'll wait to see how the IRS promulgates the regs for this one. But it sounds very good.

2.) FHA Bail Out: If a lender is willing to write down mortgage balance(s) to 90% of appraised value on an owner-occupied dwelling, and if the home owner qualifies (by proving income and assets this time around, not like last time) for an FHA loan, and if several other factors are met... some home owners currently upside down *might* be able to refinance to a smaller FHA insured loan. Maybe. No one really knows how many troubled home owners might qualify, no one knows if the write-downs are possible, and no one knows who is willing to buy out some other lender's bad paper. But it sounds nice in an election campaign sound bite to say you voted for it.

Some things Consumers won't like:
1.) FHA is increasing the statutory down payment from 3.00% to 3.50% of the purchase price. That is correct; in a market flooded with unsold homes, buyers will need more money to close on an FHA insured loan.

2.) Seller-funded down payment assistance grants are FINALLY dead. HUD has been trying to get rid of this money laundering scheme for years. The IRS revoked the non-profit status of the DPA companies in an effort to help HUD to end the practice. Since 2000, when HUD was finally forced to allow seller funded DPA grants into FHA insured transactions, the use of "non-profit" grants grew from 2% of FHA originations to 37% of FHA originations in 2007. Buyer savings, community grants, and family gifts (which demonstrate savings discipline, home buyer education, family support respectively) were abandoned by buyers in favor of "quickie grants" at closing. As a result, default on FHA loans grew from just under 8% in 2000 to nearly 18% in 2007. Goodbye and good riddance, seller-funded DPA.

3.) Lastly, any home owners who successfully refinance under the latest FHA backed bailout plan will acquire a co-owner of their home: Uncle Sam. Under the program, home owners promise to reimburse to FHA 100% of the profits on their home should they sell in the first 12 months after closing on the FHA bail out refinance. This drops to 90% in Year 2 down to 50% forever in Year 5. As a taxpayer and originator, I kind of like the idea... but I haven't heard a single media report yet that has picked up on this little hook.
by Deep River, Daytona Beach, Truilia Contributor
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