My New Blog

House votes to offer as much as $300 billion in mortgages and to back up Fannie and Freddie. Bush says he'll sign it. Senate approval is likely.

NEW YORK (CNNMoney.com) -- The House on Wednesday voted 272-152 to pass sweeping legislation that will offer up to $300 billion in assistance to troubled homeowners and throw government support behind mortgage finance giants Fannie Mae and Freddie Mac.

The nearly 700-page measure will now go back to the Senate, where final passage is expected. It's not clear when the vote will occur because of a Republican filibuster threat.

The legislation has won the support from key senators in both parties, and on President Bush withdrew his long-standing veto threat on Wednesday. "The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets," White House spokeswoman Dana Perino said.

The legislation is the centerpiece of Washington's efforts to address the nation's housing meltdown.

"This is the most important piece of housing legislation in a generation," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who led the Senate's efforts on the bill.

Critics find much to dislike about the multi-pronged plan. They argue, for example, that the bill gives "a blank check" to the Treasury to spend on helping Fannie and Freddie, despite assurances from Treasury Secretary Henry Paulson and Democratic leaders that the authority granted Treasury by the bill is unlikely to be used.

Supporters note that while no one likes every provision in the bill, the housing crisis and market instability demand action.

"This isn't a perfect solution by any means," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. But, he added, it enjoys support from a broad and unlikely coalition, including bankers, housing advocates and governors and mayors struggling with the foreclosure crisis.

Over the past year, housing prices have fallen more than 15% nationwide, according to the S&P/Case-Shiller Home Price Index. More than 340,000 have had their homes repossessed by banks during the first six months of the year, up 136% from the same period in 2007. The number of delinquent mortgage holders during the same period has risen to 1.4 million, up 56% from a year earlier.

"Enactment of the bill is too politically important to both parties for either side to let the legislation die," said Jaret Seiberg, a financial services analyst for the Stanford Group, a Washington policy research firm.

To help stabilize markets, which were shaken in the past few weeks by steep declines in the stock prices of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Treasury Secretary Paulson asked Congress on July 13 to give the Treasury power to provide a liquidity and capital "backstop" for the two companies.

Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.

The bill allows Treasury over the next 18 months to offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies if necessary.

Shares of Fannie closed 12% higher and those of Freddie 9% on Wednesday. Fannie's stock is down 79% and Freddie's 84% over the past year.

"This [backstop] sends a signal ... to help calm the market, that we'll not walk away," said Sen. Richard Shelby, R-Ala., the lead Republican on the Senate Banking Committee.

Shelby, saying the country is "in a real crisis," has long advocated for stricter oversight of Fannie and Freddie. "I believe if we'd pushed the GSE legislation four or five years ago, we wouldn't be here today," he said.

Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the companies could leave taxpayers with a fat bill to pay.

In a speech in New York on Tuesday, Paulson characterized the proposal as a way to support Fannie and Freddie and bolster the capital markets and economy.

"The best way to protect the taxpayer is to have very flexible powers which are temporary," Paulson said.

While the bill sets parameters on the Treasury's authority, it doesn't necessarily force its hand, Seiberg said. For instance, the measure requires the Treasury to take into consideration the need that it should be given priority over other GSE investors when it comes to being paid back. But "consideration" means "the Treasury has discretion in what it can seek. It doesn't have to ensure it gets paid back first," Seiberg said.

The Congressional Budget Office on Tuesday estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie and Fannie's losses would cost the government $100 billion.

The bill also aims to help homeowners at risk of foreclosure and to bolster regulation of Fannie and Freddie. Among other things, it would:

Increase the Federal Housing Administration's role. The FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if lenders agree to write down loan balances to 90% of the homes' current appraised value.

Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home's appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance. They must also agree to share with the government any profit they realize from selling or refinancing.

The cost of the new FHA program - which would begin on Oct. 1 and be in place for just a few years - would be funded by fees from Fannie and Freddie.

While the bill authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO's assessment of who is likely to qualify under the program and who is likely to default and lose their home anyway despite being in the program.

Steve Preston, secretary of the Department of Housing and Urban Development, which oversees FHA, called the bill "a mixed bag." He said in a statement that the measure "ties our hands" by making it impossible for FHA to charge higher rates to riskier borrowers. The bill calls for a 12-month moratorium on so-called risk-based pricing for FHA loans.

"Now, FHA will be required to increase prices on all customers or eliminate its refinancing program for subprime borrowers at a time when they need it the most," Preston said.

Establish a stronger regulator for the GSEs. The new regulator will have a greater say over how well funded the agencies are - a major concern in the markets that has sent stocks in both companies plunging.

Permanently increase "conforming loan" limits. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,000 from $417,000.

The FHA maximum loan limits for high-cost areas would also increase to $625,000. Higher loan limits will make it easier for borrowers to get mortgages, because they're more likely to be traded if they are considered conforming.

Create home-buyer credit. The bill includes a tax refund for first-time home buyers worth up to 10% of a home's purchase price but no more than $7,500.

The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments. It would be reduced gradually for single filers with adjusted gross incomes above $75,000 and for joint filers with AGIs over $150,000.

Bar down-payment assistance for FHA loans. The bill eliminates a program that has allowed sellers to provide down payment assistance. The seller-funded program is largely the reason why the agency's reserve has fallen by $4.6 billion, according to FHA Commissioner Brian Montgomery. Currently, that reserve is roughly $16.4 billion.

The bill would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.

Create an affordable housing trust fund. In the first three years of the FHA refinancing program, fees paid by Fannie and Freddie - based on a percentage of their new mortgage activity - would help defray potential government losses from loans that end in default. The fees would later pay for a permanent fund to promote affordable housing. Critics question, among other things, how Fannie and Freddie will be able to pay the fees if they are as undercapitalized as many say.

"It's not only bad policy, it's irresponsible," said House Financial Services Committee Ranking Member Spencer Bachus, R-Ala., during the House floor debate Wednesday. He noted that a year ago the GSEs had $106 billion in market capitalization and today they have roughly $20 billion.

Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties. The funding had been opposed by the White House, which said it would benefit lenders and not homeowners. But given the administration's push to get a Fannie and Freddie rescue proposal in place quickly, Democratic leaders decided to keep the provision in the bill, sensing the president wouldn't kill the bill over it given its other priorities.

- CNN congressional producers Ted Barrett and Lesa Jansen contributed to this report.

Today the House past a monumental bill that will prevent down payment assistance from occurring on FHA loans and increase the down payment from 3 to 3.5% as well. What this means is that if the senate passes the new version, and our President signs it into law then seller funded down payment assistance will disappear. One company that we have used for this resource Nehemiah has helped over 225,000 families through down payment assistance.

To understand how this will impact you as a home buyer, and home seller. You have to first understand how this works. If you are a home seller trying to sell your home in a tough market as Denver has been. You may receive a contract where the buyer asks you to participate in the Nehemiah program and contribute 3% of your sales price to the program and pay the administrative fee as well. So if you were going to be netting $260K on a sale of your home, it would be reduced by $7,800 down to $252,200 by contributing the money to the program. Then the buyer receives a 3% grant from Nehemiah to meet their downpayment requirement put forth by FHA. Everyone wins right? According to HUD their reserves have been reduced by poor performance of mortgages from folks who received the down payment assistance.

As a buyer you were able to meet the 3% down payment requirement put forth by FHA and get into your home in essence with no money down (if the seller also paid your closing costs).

What the passage of this bill will do if put into law is require that you once again have a down payment for you home loan. UNLESS~ you are a veteran because the VA home loan is a 100% home loan. Also, you can use a local housing authority called CHFA to purchase and receive your 3% as a silent loan that is repaid once you refinance or sell your home. Check out my link to CHFA loans on the website. This type of loan will also allow you to receive the monies as well. These are two important things to remember as things continue to evolve after the passing of this bill.

The most interesting part of the bill is the section that states the government will give first time buyers a refundable tax credit (kind of like an interest-free loan) repayable over 15 year with no interest of up to $7,500. The credit will begin to phase out for a single filer with an adjusted gross income over $75,000 and $150,000 for a joint return. (stay tuned on this point this might be the bullet). 

If you have questions about how this will or might affect you as a first time home buyer let me know rwilliams@summit-mortgage.com~

Ray

Well the week has ended on a very down note for mortgage rates. I watched the market drop well over 150 bps in the last 3 days alone. This will put rates at their highest point since August of last year. Prior to that rates were this high in August of the prior year.

This year has been a rollercoaster of sorts for rates. Going up and down almost on a weekly basis. Most recently on news from the Fed Chariman Bernanke on concerns of inflation, energy, food, and credit and stock market rallies, we have seen rate go up as money flows from bonds to stocks.

Sit tight and you could be in for higher rates in the coming weeks, as earlier in the week you could get a 30 year fixed around 6%, and now more like 6.375% for the 30 year.

This week an agent friend and I will help a family close on their first home in over 3 years. You see they were subject to the economical changes and had to file a chapter 7 bankruptcy and lost a home to foreclosure 3 years ago.

Through the process they came my way in November at a time when mortgage programs were changing daily. They ended up having to wait out the foreclosure until it hit 3 years from the time their deed transferred upon losing the home.

However, in reviewing credit reports of folks who have lost their mark through foreclosure and bankruptcy, you will find one consistency. That is that inaccuracy is the only accuracy you have. You will rarely find that your credit report reflects the bankruptcy filing and updates are done from creditors that were discharged with your bankruptcy.

Now most people know a bankruptcy and foreclosure in combination will cause you to wait 3 years to buy using FHA to get your mortgage. Now if you are using A FNMA loan you are looking at 5 years with the recent changes.

Since my clients were 6 months out we had enough time to comb through their credit report and do the necessary clean up to make sure that the time when the 3 year mark hit for their foreclosure, they were capable to buy.

One important thing is to make sure you have reestablished your credit immediately after the bankruptcy, and DO NOT miss a beat with payments on what credit you do establish. This will ensure that your score is in good standing when you do go to buy a home. Theirs was a 689 (mid) because they had taken out new credit. Don't be afraid to start over and get back on your feet.

Some of the things I had to do to assist them , was to call out to a country where they lived during the foreclosure and get copies of the release of deed through the foreclosure. I also had to call a county courthouse to show that a few judgements were actually discharged through their bankruptcy as well. Now there were some other miscellaneous repairs we did as well to make sure the credit report was accurate once they were eligible to buy again.

People may ask why I would take time to help them through this, or how much do I charge clients for this credit repair. Quite honestly, when I see someone who has the discipline to overcome a hiccup in their past I will do what it takes to help them own a home again. I don't charge , but I do ask for referrals so I don't have to go out and work as hard on my business and can focus on helping them be able to own again.

Not to break my arm off and pat my own back, but most mortgage folks they would have talked to would have told them they had to wait. In fact they did get a second opinion and this person told them they would have to wait until November. Well, considering I am looking at a final settlement statement and it is nowhere near November, I think that was bad advice.

Whether you have had a situation that requires the extra care of what I did for these folks, or you just would like the extra care that should go into buying your home and have great credit, look to the experience right now to make sure you are well taken care of and your interests are kept in mind~

Ray

303.779.0591