House Bill HR3221 Summery

House Bill HR3221 Summary
Limits subject to change without notice. Subject to FHA qualifications.

(Source: Mortgage Bankers Association Press Release 7/28/2008)
This week, President Bush signed Federal Housing Bill HR3221.
This is a summary of some of the items included in that bill and how it will affect consumers.

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.

GOVERNMENT SPONSORED ENTERPRISE 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.

TRUTH IN LENDING ACT REFORM: Requires TILA disclosures
to be delivered seven days prior to loan closing, 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 its own national licensing system if the states fail,
establishes minimum qualifications for all loan originators and
requires federal regulators to create a registry for banks and thrift
employees who originate loans.

FHA CHANGES INCLUDE: Modernization: $25 million
appropriation to improve technology, processes, program
performance, eliminate fraud and provide appropriate staffing.
LOAN LIMITS: 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 (Government Sponsored Enterprise) OVERSIGHT REFORM: A
new regulatory position is created (five-year term, appointed by
the President, confirmed by the Senate) with oversight authority
similar to that of bank regulators. This person 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% of the local median home price,
not to exceed $625,500 (effective January 1, 2009).

FHA RESCUE: Creates a voluntary program for lenders to lower
the loan balance in exchange for an FHA guaranteed loan not
to exceed 90 percent of the newly appraised value of home. The
lender pays 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. Program is capped at $300 billion.

TAX INCENTIVES: Creates a $7,500 refundable tax credit for firsttime
homebuyers. 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.
Ask Your Axiom Mortgage Consultant about this information and other
government sponsored lending programs for your clients.

What is happening with loans in the market?

As you may have heard, the Federal Reserve cut their key lending rates by ½%. This was done in conjunction with other world banks in an effort to bolster the world economy. The Fed cut their Funds Rate from 2.0 to 1.5 percent. They also cut their Discount Rate from 2.25% to 1.75%.

What does this mean for you?
The Funds Rate is the rate which affects short term borrowing – like credit card rates, home equity line rates, the Prime rate. These are short-term variable rates. The Discount Rate is the rate which banks borrow money from the Fed on an overnight basis to meet their cash reserve requirements. The Federal Reserve hopes that by lowering both of these rates, spending and consumer confidence will increase and lend strength to the economy.

So will mortgage rates change?
Here is a simple summary: Mortgage rates are long-term rates. They are not directly influenced by the Fed changing their short-term rates like they did last night. They are tied to the trading of mortgage-backed securities. Demand for those types of securities is lower right now due to the persistent weakness in the mortgage sector. Lower demand for these securities doesn’t help long-term rates go lower. For example, mortgage-backed securities (FNMA’s and GNMA’s) are trading about 11/32 worse this morning than yesterday (as of 8:10 this morning). What that means is that you would pay between ¼ and 3/8 points more today to get the same rate as yesterday. For example, on a $200,000 loan, you might pay $400-600 more in one-time fees (“points”) at closing for whatever rate you locked today, vs. if you locked yesterday.

What does the future hold?
Concerns about the mortgage market continue to minimize downward pressure on interest rates. My opinion: if you have a property picked out and loan in process right now and you are locked in, you are in a good position; that’s where I would be. If you are shopping for a home, as soon as you have an offer accepted on one, let’s talk about locking in. Rates don’t seem to be shooting up, but they aren’t going down either. That could obviously change. I’m not an expert but my feeling is that until some stability is restored, we may see continued weakening in the stock market and a lack of downward pressure on rates. If something changes and rates go lower, then we will take advantage of that wherever possible.

Buying a House

All of America seems to be going though a time a fear and waiting when it comes to buying a house. Will the market go down? Will the economy get worse? One thing about a house is, it is one investment that will over your life time, will continue to gain value and be something of service to your life and family while it gains value for you.
The best advice right now is buy something you can afford and will be comfortable in for a minimum of 4 years. Use a fixed rate loan, or at least be educated in the kinds of loans available and feel comfortable that you can make the payments.
Interest rates are on the low end of what they have been over the last 20 years. A fixed rate loan will keep your interest and principal payment the same over the life of your loan. A house is a security, that along with being affordable, can give you peace of mind for the short term and long term investment. Even if the market dips a little more, interest rates are slowly rising and for most people the payment can even be higher on a less expensive home then a higher priced home if the interest rate is higher. Every day there is a good deal out there, and everyday there is a good house that would be a nice place to live. It is a good time to buy.

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Real Estate in Salt Lake City Utah and Surrounding areas