Senate and House Clear Economic Stimulus Package with GSE and FHA Loan Limit Increases, President Will Sign This WeekOn February 7, 2008, the Senate reached an agreement and passed their economic stimulus package by a bi-partisan vote of 81-16. Within hours, the House accepted the Senate’s measure by a vote of 380-34 and sent the final bill (H.R. 5140, as amended) to President Bush for his signature.The soon to be enacted economic stimulus package includes several important housing provisions, including increases in the loan limits for Fannie Mae and Freddie Mac and also FHA. Congress and the Administration view strengthening the housing market as key to improving the national economy. Included in the package are:
1. The FHA limit will increase to as much as $729,750 in high cost areas (to 125% of local median home prices) for loans approved on or before December 31, 2008. In addition, the measure gives the Secretary of HUD the discretion to raise any individual area loan limit by an amount not to exceed $100,000.
2. The GSE limit will be increased up to $729,750 for loans originated after July 1, 2007 to December 31, 2008. Currently Fannie Mae and Freddie Mac are capped at $417,000. It appears the formula mirror that used by FHA, with GSE loan limits increasing to 125% of the local median home price, but not to exceed $729,750.
The tax centerpiece of the stimulus package is a tax rebate provision. The rebate will be $600 ($1200 for those who file a joint return). In addition, individuals with children (generally minor children or some older dependents) will receive rebates of $300 per child, with no limit on the number of eligible children. The rebate will phase out for those with adjusted gross income above $75,000 ($150,000 on a joint return). The IRS will likely begin sending the rebate checks in late May, following the 2007 income tax filing season.
In addition to the rebate, two business tax provisions will provide benefits to small business. The first would permit a business to deduct as much as $250,000 of the cost of otherwise depreciable property. This expensing provision applies to property acquired and placed in service during 2008. A second provision would provide a “bonus” depreciation deduction for the cost of leasehold improvements and certain other equipment. The bonus will be 50% of the cost of the improvement. The provision is effective for improvements placed in service during 2008. Improvements placed in service during 2009 will be eligible for the bonus deduction, but only if they are made pursuant to a contract entered into 2008.
President’s Budget Impacts Housing, Real Estate
On February 4, 2008, the President released his proposed budget for FY 2009. A summary below provides a preliminary analysis of how the Administration’s budget would affect the real estate industry. While details are sparse on many of these proposals, NAR will continue to work to obtain more information. The FY09 budget is available at: http://www.whitehouse.gov/omb/budget/fy2009/. Key Highlights include:Housing Programs
1- The Administration is requesting $38.5 billion for the US Department of Housing and Urban Development (HUD), which is $3.2 billion or a nine percent increase over the FY 2008 proposed budget. The proposed budget includes increases in funding over FY 2008 proposed budget for housing counseling, Neighborhood Reinvestment Corporation, the HOME Investment Partnerships Program (HOME), and the Self-Help Home Ownership Opportunity Program (SHOP).
2- HOME funds include $50 million for the American Dream Downpayment Initiative (ADDI), which is a $40 million increase over FY 2008 enacted budget.
Government Sponsored Enterprises
1- The Administration again proposes a new independent Federal Housing Enterprises Regulator for the housing government sponsored enterprises (GSEs): Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The new regulator would combine safety and soundness authority with oversight of their housing missions.
2- The Administration supports GSE reform legislation to enhance the powers of the new regulator, including the ability to put a GSE into receivership if it were to fail, new product approval authority, authority to address the size of their retained portfolios and to mitigate related risks, and authority to ensure compliance with affordable housing mission of the enterprises.
Flood Map Modernization Program
The President’s budget is proposing $256 million to fund the Flood Map Modernization Fund for 2009. This will allow the Federal Emergency Management Agency (FEMA) to complete the updating and modernization of most of the maps in the country, and also allow them to develop procedures to regularly update and maintain them. The Flood Map Modernization Fund is used to update, modernize and maintain the inventory of over 100,000 flood maps nationwide.
Rural Housing Service/Rural Development Programs
1- The Administration is requesting nearly $15 billion for the Department of Agriculture’s Rural Development programs. This includes $4.8 billion for the single family loan guarantee, an increase of $600 million from FY 2008.
2- No funds are requested for the 502 Direct Single Family Housing Loans for FY 2009 as the single family guarantee is expected to replace the direct loan program. The FY 2009 budget requests $300 million for the 538 guaranteed multifamily housing loans. This level of funding supports the Administration’s policy to maintain rental assistance for 230,000 low-income households that reside in USDA financed multi-family housing.
View the FY 2009 Federal Budget Key Real Estate Provisions>
Congress Makes Do-Not-Call Extension Permanent
On February 6, Congress sent to President Bush for his signature legislation that overturns a Federal Trade Commission (FTC) rule consumers must re-register their phone numbers every five years on the federal Do-Not-Call (DNC) list.The also legislation changes the method by which fees are collected from telemarketers from one where fees are set by the FTC to one where any fee increase is tied to a commonly accepted public index of the rate of inflation. The FTC has previously announced that there would be no increase in DNC access fees for telemarketers in 2008.
In addition, the legislation requires the FTC to issue a biennial report to Congress to evaluate, among other things:
1- The impact of the established business relationship exception on businesses and consumers 2- The impact of the exceptions to the DNC registry on businesses and consumers, including an analysis of the effectiveness of the registry.
Organizations engaged in charitable, political and survey work is exempt from the restrictions. Also, companies with an established business relationship with a customer may call for up to 18 months after the last purchase, payment or delivery.
Also, the DNC is “scrubbed” on a monthly basis by the FTC to remove all reassigned or disconnected numbers from the list.
NAR will continue to dialogue with the FTC on the impact of the DNC rules on small businesses as well as NAR’s continuing concerns with the rules.
HUD sends RESPA Reform Proposal to Congress after OMB Review
The Department of Housing and Urban Development (HUD) sent the long-awaited Real Estate Settlement Procedures Act (RESPA) reform proposal to Capitol Hill on Wednesday February 7, 2008. The Office of Management and Budget (OMB) completed its review of the proposed regulation on Tuesday February 6, 2008 after an almost three month review. The proposed RESPA regulation will remain on the Hill for three weeks while Congress reviews its provisions. A public release is expected the last week of February or the first week of March after which NAR will review and submit comments on the new RESPA regulation during the following public comment period.
Conventional Residential Lending Report
Senate Banking Committee Holds Hearing on Reforming the GSEs
On February 7, 2008, the Senate Banking Committee held a hearing entitled, “Reforming the Regulation of the Government Sponsored Enterprises.” The Committee heard from Assistant Secretary David Nason (Treasury), Director James Lockhart (OFHEO), Chairman Ronnie Rosenfeld (Federal Housing Finance Board), Dan Mudd (Fannie Mae) and Dick Syron (Freddie Mac).The hearing focused on legislative proposals to create a new, independent regulator with broad powers analogous to current banking regulators. Witnesses also touched on issues such as increases to the conforming loan limits, capital requirements to weather bad economic conditions, and the need for the GSEs to remain focused on their mission of supporting the housing markets â especially affordable housing.
NAR has long-supported GSE reform, and has led the support for increasing the conforming loan limits in the soon to be enacted congressional economic stimulus package. Read NAR’s statement.
GSE Policies Require Higher Down Payments in Declining Markets
Fannie Mae and Freddie Mac (the GSEs) each have policies that reduce the maximum loan-to-value ratio for loans they purchase by 5 percentage points if the property is located in a “declining market.” This means, for example, that if the down payment would otherwise be 3 percent, it would be increased to 8 percent for properties in declining markets. Freddie’s policy is long-standing. Fannie’s was recently reinstituted, effective for loans with application dates on or after January 15, 2008.The policies will make home buying less affordable, and some have questioned the disparate impact of the policies on minorities and lower income areas. NAR has raised concerns about these policies with the GSEs, and both are expected to issue additional clarification.
Lenders who sell mortgages to the GSEs have the ultimate responsibility for determining whether the property is in a declining market. REALTORS® are well-positioned to provide important information about market values to help appraisers and lenders determine whether properties are, in fact, located in declining markets. This information will provide critical assistance to many home buyers, and REALTORS® can make the difference between a disappointed consumer and a new homeowner.