Mortgage Reform
The housing market has been in turmoil for several years now and you have begun hearing news about reform. The mortgage industry’s reforms and incentives are designed to improve buyer confidence and aid delinquent borrowers. There are 5 key points to reforming the mortgage industry and in return improving the housing market.
- FHA modernization including simplifying and making available more FHA backed mortgages.
- Permanent increases to FHA ad GSE (Government Sponsored Enterprises) loan limits.
- Reform Fannie Mae and Freddie Mac. (This will be addressed in a separate blog post)
- Expand FHA to allow mortgages to be refinanced into FHA programs.
- Tax credits for first time home buyers.
Effective October 1, 2008, FHA loans will require 3.5% down payments, instead of 3% down payments. Gifts for down payments will still be allowed from family or non profits, but Seller assistance and Down Payment Assistance Programs will no longer be allowed. The mortgage industry is fighting the elimination of the Down Payment Assistance Programs, such as Nehemiah, and instead asking for these programs to be reformed and restricted.
As of January 1, 2009 new permanent FHA loan limits will be as follows:
- Based on 115% of median sales price (set by HUD)
- Up to max of $625,000 with guarantee max of no more than $417,000.
This is lower than the temporary loan limits that are effective now. All FHA loans with temporary loan limits must be FHA DE underwritten and approved by 12/31/2008 and Freddie and Fannie loans must be funded by 12/31/2008.
An FHA refinance option will be available for some subprime loan borrowers that are facing delinquency. This reform will allow loan servicers to place delinquent borrowers into FHA loan products and then sell the loans to FHA. Servicers can lend up to 85% of current value. The borrower would then share 50% of all future appreciation with FHA. There are also refinance “fast track” options for current FHA borrowers. A borrower with an FHA ARM loan can refinance into an FHA 30 year Fixed Loan at a reduced fee structure. Limitations and qualification are attached to these programs and you need to talk to a qualified loan officer to get more information and find out if these programs are available to you.
Tax credits are now available to first time home buyers! A first time home buyer is defined as anyone who has never had an ownership interest or has not had an ownership interest in the last 3 years. The tax credit also only applies to primary residences. These credits also have income restrictions. The tax credit is up to $7500 for a home purchased from April 9, 2008 – June 1, 2009. The borrower will have to pay the credit back via annual taxes at 6% per year over 15 years. There is no interest due on the tax credit. For more information on the tax credit visit: www.federalhousingtaxcredit.com or speak to an accountant.
