In a press release circulated on Monday, November 30, the FHA announced new proposed rules to “Strengthen Risk Management.” The proposed changes include increasing financial worth of FHA lenders, tighten underwriting requirements for borrowers, and require FHA lenders to take on the liability for the loans they originate.
FHA has a history of providing low down payment mortgages to millions of home owners since 1934. FHA sparked the resurgence of a very flat housing industry when it was created by providing affordable mortgages with acceptable terms at a time when mortgages had very stringent underwriting guidelines as well as very harsh terms. . FHA has played a major role in subsequent recessions and housing downturns to help stabilize the marketplace by assisting cash strapped home buyers purchase their first home.
FHA’s role in the housing industry has undoubtedly increased the value of homeownership by making homeownership affordable. Unfortunately, it seems as if FHA is another victim of the financial crisis as it no doubt suffered losses by bailing out troubled home owners through such programs as HOPE for Homeowners.
In a time when home buyer sentiment is wavering, increasing financial and credit requirements for potential home buyers will further diminish the value of homeownership. Increased financial and credit requirements in a time when recessionary forces have already reduced home buyer resources will undoubtedly affect the recovering real estate market and shift the consequences of the financial crisis to many potential home buyers by making home ownership less affordable.
This article is not intended to provide nor should it be relied upon for legal and financial advice.
If you have heard of H.R. 2454 you may not have thought much about it. Yes, this is the famous (or infamous) American Clean Energy and Security Act of 2009 also known as “cap and trade.” What many home owners may not realize is that H.R. 2454 is not only directed toward commercial uses, it is aimed toward home owners as well.
Title II Energy Efficiency, Subtitle-A: Building Energy Efficiency Programs establishes that effective on the date of enactment, new buildings must meet a national building code to meet a thirty percent reduction of energy use relative to a baseline code. By January 1, 2014 new residential buildings must meet a fifty percent reduction in energy use; energy use reduction in residential buildings will be required to increase five percent every three years thereafter.
This legislation establishes National Energy Efficiency Building Codes for commercial and residential buildings “to meet each of the national building code energy efficiency targets.” The Secretary of Energy is given the duty to create and amend the National Energy Building Codes by determining the percentage of energy improvements that would be achieved by proposed improvements and to propose the improvements necessary to meet or exceed the target (Title II, subtitle A, section 304(a)).
Once the National Energy Efficiency Building Codes are established, state and local jurisdictions have one year to adopt the national code. If after the one year, a state and/or local jurisdiction fail to adopt the national building code, “the national code shall become the applicable energy efficiency building code for such jurisdiction” (Title II, subtitle A, section 304(d)”APPLICATION OF NATIONAL CODE TO STATE AND LOCAL JURISDICTIONS”).
If a building is out of compliance with the national code, a violation may be determined by state, local, and/or federal authorities. Enforcement of the national building code will be enforced by the state (if law is adopted) through random inspections of buildings. (Title II, subtitle A, section 304(e)”STATE ENFORCEMENT OF ENERGY EFFICIENCY BUILDING CODES”).
If a state does not adopt the national building code, then enforcement falls to the Federal level, where the Secretary of Energy will create rules for building code violations and penalties. The Secretary will create “an energy efficiency building code enforcement capability” (which will conduct building inspections). Fees will be collected to “cover costs” of the enforcement procedures (Title II, subtitle A, section 304(f) “FEDERAL ENFORCEMENT AND TRAINING”).
The legislation also creates the Retrofit for Energy and Environmental Performance (REEP) program. The goal of the program is to “facilitate the retrofitting of existing buildings across the United States to achieve maximum cost-effective energy efficiency improvements and significant improvements in water use and other environmental attributes.”
Additionally, the Act creates the Building Energy Performance Labeling Program to provide the public the necessary efficiency information of a building. The information would be made accessible to “owners, lenders, tenants, occupants, or other relevant parties who can utilize it.” Buildings will be labeled at the time of sale, when retrofitted, or by inspection.
Although the Act is well intentioned, specifics are lacking that leave many rules and procedures (including inspections, violations, and penalties) to be decided at a later time at the discretion of the Secretary of Energy and/or state and local officials. Unfortunately, you may not hear much more about how “cap and trade” affects home owners; however, unclear legislation may have unintended consequences to home ownership and the real estate market.