The omnibus housing bill, otherwise officially know as Foreclosure Prevention Act of 2008, passed  in a 72-13 vote Saturday (July 26, 2008), the Senate concurred with previous House amendments to HR 3221.

In effect, the passing of this bill, grants the Bush administration’s request to give the Treasury Department the temporary authority to buy an unlimited amount of the debt of government-chartered mortgage financiers Fannie and Freddie. Some say this is the most important housing bill in a generation.

Only time will tell whether that statement will prove true, or not, but one thing is for sure:there will be much debate regarding the effectiveness and the propriety of passing this bill and how each of its provisions will evolve. In terms of legislation this is more of a tsunami than a mere ripple, and clearly worth much analysis in the days to come.

And here comes the criticism: As reported today by Inman News (July 30, 2008) on the day the President signed the the sweeping housing bill, HR 3221, inevitably has its critics. Some feel the legislation is a mixed-bag:

• Including Housing Secretary Steve Preston, who’s unhappy that Congress has placed a one-year moratorium on the use of “risk based” premium pricing for FHA loan guarantees.

• Home builders are also bracing for the elimination of seller-funded down payment assistance with FHA-guaranteed loans beginning Oct. 1.

• Others in the housing industry are lamenting that a $7,500 tax credit for first-time homebuyers that will expire July 1, 2009, must be repaid over 15 years — making it, in effect, an interest free loan.

You decide. The devils in the detail. Here is a full list of key provisions in the bill (for a more detailed review, click here to go to CCHs 7 page tax analysis and detailed summary of the bill, providing keys tips and practical insights):

FHA Modernization: 

• Authorizes a $25 million appropriation to improve technology, processes, program performance, eliminate fraud and provide appropriate staffing.

• Effective January 1, 2009, it also increases the FHA loan limit to the lesser of 115 percent of the local median home price or $625,500 with a floor for lower priced markets of $271,000,

• Establishes a 12-month stay on FHA’s proposal for risk-based premiums,

• Sets the down payment requirement at 3.5 percent and

• Prohibits seller-funded down payment assistance (both direct or through a third party).

GSE Oversight Reform: 

• Creates a new regulator (five-year term, appointed by the President, confirmed by the Senate) with oversight authority similar to bank regulators,

• Establishes a new affordable housing fund and capital magnet fund to be funded by a 4.2 basis point fee on all new loans,

• Significantly changes the affordable housing goals and raises the conforming loan limit to the higher of $417,000 or 115 percent of the local median home price, not to exceed $625,500 (the stimulus limits remain in effect until January 1, 2009).

FHA Rescue:

• Creates a voluntary program – which is really the wild-card in that no one knows which financial institutions will opt to take advantage of this program – for lenders to write down the loan balance in exchange for an FHA guaranteed loan not to exceed 90 percent of the newly appraised value of home.

• The lender would pay a 3 percent FHA loan origination fee. 

• To qualify, the borrower must have a debt-to-income ratio above 31 percent on the original loan. Check out one commentators view on this controversial new provision.

• The program is capped at $300 billion.

Tax Incentives: 

• Creates a $7,500 refundable tax credit for first-time home buyers,

• Expands the volume cap for the low income housing tax credit,

• Allows for tax-exempt treatment of bonds guaranteed by the Federal Home Loan Banks and

• Exempts the low income housing tax credit from the alternative minimum tax.

Low Income and Affordable Housing: 

• Encourages the development of low-income and affordable housing by harmonizing multi-family FHA mortgage insurance programs with the low income housing tax credit. 

• Allowing these two programs to work together will result in more effective uses of both programs.

GSE Backstop: 

• Authorizes the Treasury Secretary to temporarily increase the GSEs’ line of credit and to, if necessary, buy equity in the GSEs in order to provide confidence to credit markets.

• Also provides a role for Treasury and the Federal Reserve in GSE oversight to ensure safety and soundness.

TILA Reform: 

• Requires TILA disclosures to be delivered seven days prior to loan origination,

• Requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms and

• Mandates that the consumer receive early disclosures before paying anything more than a nominal fee that covers the cost of a credit report.

Empowering States: 

• Raises the cap by $11 billion on tax-free bonds that state housing finance agencies may use to help at-risk homeowners by refinancing troubled loans and

• Appropriates $4 billion for states to purchase and renovate abandoned and foreclosed properties.

Licensing: 

• Encourages state officials to create a national licensing system for residential loan originators,

• Allows HUD to create a licensing system for those states that fail to enact their own,

• Establishes minimum qualifications for all loan originators and

• Requires federal regulators to create a registry for banks and thrift employees who originate loans.

Tags: Omnibus Housing Bill 2008

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