The Media can be misleading.
Yeah I know, no surprise there!
But let's talk about HR 3221, H.R. 3221 or if you want to call it by it's really long name, the Housing and Economic Recovery Act of 2008
It was signed into law Monday July 28th, 2008. It was reported all over the world. it's the talk of the town. I've been interviewed on radio shows, quoted in articles and blogs. Ok, now what?
Just about nothing. We're waiting.
There's quite a few facets included in the bill that still need to be hashed out. Here's a quick peek at just some of the facts.
The $7,500 Tax Credit
It's a tax credit (not a rebate). It's for purchases made between April 9, 2008 and July 1, 2009. It's essentially an interest free loan for 5 years that has to be paid back.
Down Payment Assistance Programs
HR 3221 wipes out the ability for down payment assistance on an FHA loan starting October 1, 2008. Think you have till then? Think again. The Lenders are already not allowing DPA on the loans they are accepting.
Skin in the game
FHA used to finance up to 97%. That meant that the buyer had to pony up the other 3%. As of October 1st, under the new rules, the borrower will have to 3.5%.
Reserve Requirements for Second Homes
Thinking about buying a second home? Vacation home? How about Rental Property. It's a great time to find bargains. How much liquid reserves do you have in the bank? There wasn't a minimum reserve requirement before. Now there is.
Have less than 30 % equity in the second home? You'll need to prove you also have 6 months worth of PITI reserves for both properties in the bank (liquid). Yeah I said SIX months! Have more than 30%? You'll just need to prove you have two months reserves.
Capital Gains Exclusion
Are you good at percentages? Remember when you were entitled to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided you lived in the residence for at least 2 of the preceding 5 calendar years? Not any more.
Now that exclusion is calculated by taking the capital gains on the sale of the home and multiplying it by a ratio (percentage) of how long you lived in the home and how long you owned the home.
Loan Limits Increased!
Nope. Matter of fact, depending on where you live, FHA, Fannie and Freddie Conforming Jumbo loans will decrease.
The Mandatory Refinance at 90% of Present Value
I saved the best for last. First of all it's not mandatory. It's actually voluntary on the lenders part. Should a lender decide this is in their best interest, they'll still hold the note. They'll reduce the size of that note to 90% of the present value and that's what FHA will be on the hook for. Then again, nothing here is in concrete. The details still have to be hammered out by HUD. Until that happens, nothing really has changed.
So there you go. You know know more about HR 3221 than the next guy at the water cooler.
What should you do if you think any of these changes will involve you in the future? Contact your trusted mortgage professional today.
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Hi Mike, Thanks for the concise and clear info on the recovery act.
All the best!
Mike, thanks for the quick and easy version. Let's see how long it takes them to hash out how it really is going to work. aj
Mike, that explanation passed the Pat Test! I even understand it a whole lot better than I did. Thanks.
I hadn't realized that tidbit about the second home reserves. That can't be too helpful for the second home market. Still can't see how this bill is helping us too much!
Mike,
Excellent summary, especially compared to my wordy versions. A little note on the Hope for Home Owners foreclosure relief - the version of the law that I read indicates that the 3% UFMIP is included in the 90% LTV, and they have legislated that the remaining closing costs (and prepaids also ???) are to be limited to 2%. What I read seems to make that part of the law.
copied from the version that I have:
"pay the full amount of the loan origination fee and any other closing costs, not to exceed 2.0 percent of the amount of the original insured principal obligation of the mortgage insured under this section."
The 3% UFMIP plus 2% closing brings the loan amount close to the 85% figure that is brought up as the amount the existing lenders are to write down to.
Richard
Mike, this is all good stuff! Yours is one of a few mortgage blogs I check to see "what's going on" and I'm always amazed at how much I learn.
Thanks!
Mike,
This stuff is good to know. I guarantee I now know more than the next guy at the water cooler thanks to you.
Mike... I wonder if we should push for people that have made a bunch of money in homes to get out for tax reasons and raise their basis.
Kevin - Thanks. I left copious amounts out. But feel free to read the 690+ pages and see what you can make of it. LOL
AJ - Thanks! It remeinds me of when they bumped the conforming limits and although the law was signed - we still had to wait around for HUD to do their thing.
Patricia - The Pat Test? Cool. love to see the explanation.
Linsey - There are a lot of people who can't see the help in the law (except maybe those that own Fannie and Freddie stock)
Richard - You are right on. I did leave that out. (did it on purpose) Really, there's enough blog content in this law to fill a thousand posts! Tried as hard as I could to make the video under 1.5 minutes. Couldn't do it even with the abbreviated stuff I wanted to mention.
Mary - Thanks! I'm flattered. Really.
Fran - I don't even have a water cooler. LOL
Lane - Want to solve the housing crisis? Just have everyone sell their house and move one house to the right.
I am confident this will help stabilize the market. though unlikely to cause a rebound
Great idea... I really like the house to the right. The guy to my left is going to be upset, though...
Mike... this is a good, brief description of what might take place. I say might, because as soon as these are being worked out, there could be a good chance that the DPA program be reversed. And if not now, depending on who wins the election.
@ James.... confident that this will help stablize the market? Why? The economy in itself is what is in shambles. Even people with 10% or sometimes 20% down have foreclosed. It's called job loss, decrease in income, a death in the family, a bad divorce. The gov't needs to stop being a band aide. They can also ruin things. Do you really think puting an extra 1/2 percent into the transaction will make a difference? These are just my opinions... and there is a lot more behind this.
Consider yourself bookmarked. This is the best explanation I have seen yet. Thanks so much for clarifying those muddy waters.