The “Housing and Economic Recovery Act of 2008” signed by President Bush

This week President Bush signed the $300 billion housing bill aimed at helping homeowners avoid foreclosure and it’s estimated that roughly 400,000 families will benefit. The changes are scheduled to begin October 1, 2008. It’s a very detailed bill but some of the highlights include:

FHA Changes

Mortgage limits for high cost areas will be increased to the greater of $417,000 or 115% of the local area median home price, capped at $625,000. The FHA floor will go from 48% to 65% of the current conforming loan limit or $271,050.

The FHA down payment requirement will now be 3.5% of the purchase price up from 3.0%.

Seller funded down payment assistance program (DPA) will be terminated on September 30. Other assistance programs provided by non profits or funded by churches, employers or family members remain intact.

Fannie and Freddie

The conforming loan limit will be increased to the greater of $417,000 or 115% of local area median home price up to $625,000.

The bill includes language to authorize the Treasury to make loans to and buy back stock from Fannie Mae and Freddie Mac, establish capital standards, management standards, review and approve new product offering to ensure future sound operations.

FHA Rescue Program

A special FHA refinance program will allow the refinance into fixed rate FHA products of up to $300 billion in distressed mortgages. A few of the details include:

· Homeowners currently living in their home with loans that were issued between January 2005 and June 2007.

· They must be spending at least 31% of their gross monthly income on their mortgage payment.

· They can be current or behind in their monthly payment but must prove they can not continue making the payment.

· Other debt such as home equity loan must be retired first and they can not obtain another home equity for 5 years unless they can prove it’s needed to pay for required maintenance to their home. In addition the new debt can not total more than 95% of the homes value and approval from FHA must also be granted.

· Homeowners will share in future profits by paying a 3% exit fee based on the principal balance to FHA when they sell or refinance.

· If the home is sold or refinanced within a year they will have to pay 100% of the profits to FHA. After a year that numbers drops to 90% and the profit percentage drops in 10% increments to the 5 year and stays at 50%.

Local Foreclosed Properties

The bill provides for $4 billion in neighborhood revitalization funds for local governments to purchase foreclosed properties.

Tax Incentives

A tax credit of $7,500 will be available for First Time Buyers who have or will purchase between April 8, 2008 and June 30, 2009. The Low Income Housing Tax Credit will also be expanded.

For questions on the new law, and how it may effect your purchase or sale, contact the Get Home Denver Team for all your real estate answers!