GSE Archives - Real Estate News and Commentary

August 6, 2008October 5, 2019

President Signs Historic Housing Legislation

by Dan Krell

The lack of fanfare over the signing of The Housing and Economic Recovery Act of 2008 on July 30th by President Bush was the anticlimax of the long Congressional battle of proposed housing legislation. The long awaited and highly anticipated legislation is historic for its wide reaching changes in the mortgage and housing industries as well as foreclosure assistance.

For the mortgage industry, the Housing and Economic Recovery Act of 2008 changes how the Government Sponsored Entities (GSE’s), FHA and VA will conduct their mortgage businesses. In addition to the recent loan limit increases ($625,000 for conforming mortgages and $625,000 for FHA loans in high cost areas) becoming permanent for Fannie Mae, Freddie Mac, and FHA, the new law will increase oversight and offer more options and protections to home buyers.

For the GSEs (which include Fannie Mae, Freddie Mac, and Federal Home Loan Banks), the new law provides temporary assistance to the financially beleaguered Fannie Mae and Freddie Mac from the United States Treasury in the form of discount loans to help stabilize the mortgage giants. Additionally, a new and “independent” regulator to oversee the GSEs will act like a federal regulator to ensure that the GSEs are financially stable.

The new law includes the FHA Modernization Act of 2008, which gives the venerable government insured mortgage a face lift. There have not been such significant changes to FHA since its inception in 1934. Among the many changes, FHA will have a more streamlined process, increase the down payment to 3.5% of the purchase price, bar down payment assistance programs, and require home ownership counseling for home buyers.

The new law seeks to prevent mortgage fraud by launching efforts to license all mortgage originators. Although many states now require mortgage originators to be licensed, the new law will focus on those originators who are exempt from current laws (which typically include mortgage originators who are employed by federally chartered banks).

New mortgage disclosure requirements expand the Truth In Lending Act (TILA) to require lenders to provide meaningful information to consumers about their loans. The time frame will be three days from application and seven days before settlement. This is meant to allow consumers to compare mortgage rates and terms within a reasonable time frame.

Home buyers who purchase a home between April 9, 2008 and June 30, 2009 will have the opportunity to qualify for a tax credit which is repayable over fifteen years. However, the credit is limited to ten percent (up to $7,500) of the purchase price of a principal residence, and only for first time home buyers who meet income restrictions. Other restrictions apply, so you should consult your accountant for additional information.

For home owners facing foreclosure, the new legislation includes the HOPE for Homeowners Act of 2008. The program will allow the home owner’s present mortgage be refinanced through FHA. However among other qualifications, the program requires the home owner’s present lender to agree to accept losses to 85% of appraised value of home.

To the average person, these sweeping changes may seem dull and unimportant; many remain critical of the new legislation. However, because the Housing and Economic Recovery Act of 2008 is so wide reaching, it is truly historic.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 4, 2008. Copyright © 2008 Dan Krell.

July 11, 2008November 23, 2021

Don’t Panic – Housing relief is imminent

by Dan Krell © 2008
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Thumbing through an old copy of the late Douglas Adams’ very popular story “The Hitchhiker’s Guide Through the Galaxy,” I find the “Guide’s” message of “Don’t Panic” apropos for anyone concerned about the real estate market or in need of assistance. “Don’t panic,” help is on the way.

Help is imminent in the final form of HR 3221: the American Housing Rescue and Foreclosure Prevention Act. HR 3221 is comprised of a number of other bills that have been proposed over the past year (which started in July 2007), and has been passed in various forms in both the House of Representatives and the Senate. The hang-up on its passage has been differences between the House and Senate version. The Housing and Economic Recovery Act of 2008 (Banking.Senate.gov) is the latest proposed changes to HR 3221 and is to be voted on in the Senate in the coming week. The evolution of HR 3221, along with its many names and Acts, can be viewed at House.gov and GovTrack.us.

One of the most controversial issues in HR 3221 is the provision for tax credits to home buyers. Although home buyer tax credits up to $7,500 will be provided as an interest free loan over fifteen years, advocates and critics have argued over the tax credit’s virtues and shortcomings.

The newest wording of the American Housing Rescue and Foreclosure Prevention Act comes from the Senate’s Housing and Economic Recovery Act of 2008. Highlights of this new version include the improvement and regulation of the government sponsored entities (Fannie Mae and Freddie Mac), permanent modernization of FHA, and foreclosure protections.

Oversight of the government sponsored entities (GSE) will be through a new office that will be responsible for establishing capital and management standards (which will include internal controls, audits, risk management, and portfolio management); enforcing its orders through cease and desist authority, civil money penalties, as well as the authority to remove officers and directors; restricting asset growth and capital distributions for undercapitalized institutions; putting a regulated entity into receivership; and reviewing and approving new product offerings.

Improvements within GSEs will include the permanent loan limit increases in high cost areas and required affordable housing goals. To assist in meeting those goals a Housing Trust Fund and a Capital Magnet Fund will be created, which will used for the construction of affordable rental housing.

Modernization of FHA will allow for broader access and a streamlined process to provide mortgages to home buyers in all areas. Additionally, FHA loan limits will be raised to 110% of area median home prices (with a cap of 150% of the GSE limit).

It is anticipated that FHA will also assist home owners who are in foreclosure. Originally known as the FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830), (AKA HOPE for Homeowners Act of 2008), the program will provide refinancing assistance to those homeowners who are in foreclosure. If the home owner’s lender agrees to participate, the program will provide a new loan that is the lowest of either 90% of the home value or what the borrower can afford to repay.

Given all the necessary modifications and changes to the legislation, help is hopefully near. But just in case you are in doubt, remember not to panic.

January 28, 2008October 5, 2019

Will mortgage loan-limits increase?

by Dan Krell

Are you planning to buy a home this year? If you are planning to purchase a home that is priced more than $417,000, you could get a lower interest rate-if Congress raises conforming loan limits.

First, a very basic primer in mortgage jargon: “Conforming” refers to mortgages that correspond to Government Sponsored Enterprises (GSE) guidelines. GSE refers to those quasi-government enterprises that include (among others) Fannie Mae and Freddie Mac. Conforming guidelines include underwriting criteria that lenders use so they can sell the loans to Fannie Mae and Freddie Mac. The guidelines have strict borrower criteria as well as loan limits. The loan limit is set annually as a reflection of changes to the national average single family home price as determined by the Federal Housing Finance Board’s Monthly Interest Rate Survey. A “jumbo loan” is a mortgage that exceeds conforming loan limits; and usually has higher interest rates because of the higher risk involved.

Two large associations advocating for higher loan limits include the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB). Both the NAR and NAHB argue that increasing conforming loan limits would solve liquidity problems in the jumbo loan market, which would make lending for loans up to $625,000 easier for home buyers who are looking to purchase a home over the current loan limit of $417,000. The NAHB suggest that loan limits be raised temporarily while secondary markets normalize, and be re-evaluated after a two year increase. The NAR cites the need for stimulation of the housing market and the lowering of interest payments to those obtaining loans over the $417,000 limit.

The issue of raising GSE loan limits is not as simple as stimulating a sluggish housing market; as Federal Reserve Board Chairman, Ben Bernanke, made clear to Congress in September 2007. His statement to Congress implied that any increase in loan limits could provide false security to investors on the secondary market – increasing risk to those investors, their companies, and the government. Additionally, Dr. Bernanke implied that if Congress is inclined to increase the loan limits that it should be done quickly, temporarily, and ensures that any increase will function as intended.

What’s the risk? A recent report from the Office of Federal Housing Enterprise Oversight (OFHEO.gov) (the government entity whose mission is to ensure the safety and soundness of Fannie Mae and Freddie Mac) entitled “Potential Implications of Increasing the Conforming Loan Limit in High-Cost Areas” reports that any loan limit increase would only help those in high cost areas as most jumbo loans tend to be geographically centered (California had almost forty-nine percent of the jumbo loans originated in 2007). One unintended consequence from raising loan limits to lower mortgage interest payments may be that home prices will increase to make high-cost areas actually cost more. Additionally, anticipated savings benefit may not be achieved as Fannie Mae and Freddie Mac have to charge for taking any increased risk.

As for now, it appears that loan limits for 2008 will remain the same as 2007. It is clear that although there are benefits, there may also be too many questions left unanswered before Congress can act quickly to raise GSE loan limits.