For Expert Assistance:

2008 Housing
Act Signed

Fannie, Freddie bailed out and New FHA Programs Start October 1, 2008

by Michael Licamele

August 2008 Update: The housing bill is now law and takes effect October 1, 2008. Below is a summary of the key provisions of the act and what new programs are available to borrowers.

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The following are summaries of the act from followed by

Title IV Helps Homeowners Get a Fresh Start

Title IV establishes the “Hope for Homeowners Program” to enable the Federal Housing Administration (FHA) to refinance the mortgages of at-risk borrowers living in their only home if (1) mortgage holders write-down the principal of the mortgage; (2) borrowers agree to share future equity with the federal government; and (3) the borrower can afford to repay the new loan. This title also clarifies the fiduciary duty of mortgage servicers when making loan modifications; and improves appraisal standards for FHA loans.

What this means for homeowners: If you are a homeowner who has a loan that is significantly higher than the current value of your home and if your lender agrees to participate in the program, you will get to refinance your loan at a lower loan amount with lower payments using this new loan program. Also, if you currently have an adjustable rate mortgage that has increased to higher than what you can afford this program will also help you. According to the act, borrowers can either work out a refinance with their existing lender or servicer, or they can refinance with a different lender.

Division B. Title I

Division B. Title I includes important reforms to modernize the FHA program, including FHA single family loans, FHA personal property manufactured homes, and FHA reverse mortgage loans. The title raises FHA loan limits in high cost areas, by setting the limit in such areas at 115% of the local area median home price, not to exceed a nationwide loan ceiling of $625,500 (150% of the GSE conforming loan limit).

This part of the act also modernizes the FHA Title 1 manufactured loan program, which provides affordable mortgage loans for manufactured homes on leased land, by raising program loan limits to keep up with inflation, restructuring the program more like title 1 loans to make loans more securitizable in the secondary market, and by requiring HUD to revise underwriting standards to make the program fiscally sound.

The title also includes a one-year moratorium on FHA risk-based pricing, effective October 1st, and eliminates the FHA seller-funding Gift Downpayment Program, effective October 1st.

What this means for homeowners and home buyers: For buyers of single family homes, the temporary higher loan limits that took effect in March 2008 will be extended permanently for high-cost areas. Buyers of manufactured homes on leased land (including mobile homes) should see more programs available with better rates in the next few months. Seller-funded down payment gift programs are no longer available and buyers will now have to make down payments of 3.5% of the purchase price (the down payment can be a gift from family members).

The good news for seniors is that the higher loan limits will also apply for reverse mortgages as well. The act makes a number of changes to FHA reverse mortgages for seniors who want to access equity in their homes. It creates a higher, nationwide uniform loan limit equal to $625,500, reduces and caps the maximum fee lenders can charge seniors for FHA reverse mortgage loans, establishes protections to prohibit requiring seniors to purchase other financial products in conjunction with FHA reverse mortgage loans, and authorizes reverse mortgage loans for the first to be eligible for home purchase.

This act represents the biggest government effort in the housing sector since the 1930s when the FHA program was first created.

Michael Licamele is with Eastwood Realty Systems.

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