|Conventional Residential Lending Report |
|Housing Issues Continue to Dominate Tax Agenda|
|Following enactment of the first round of economic stimulus legislation (the $600 rebate and 50% bonus depreciation package recently enacted), Senate Majority Leader Reid (D-NV) introduced a second stimulus package directed specifically toward housing issues. That package contains provisions that the Senate had approved earlier, but that were not included in the final stimulus package. One important tax provision is intended to help homeowners stay in their homes. It would allow state housing agencies to issue additional mortgage revenue bonds and to use the proceeds from those bonds to assist eligible homeowners refinance subprime mortgages. A second provision would allow some taxpayers with losses to use the net operating loss carryback benefits for 5 years rather than the two years of current law.|
The legislation was called up for Senate debate on February 28. Efforts to begin debate failed, however, on a very close procedural vote. Significant controversy related to a non-tax bankruptcy provision in the package doomed the package. It is expected that the Senate Finance Committee will make an effort to craft yet another tax-based housing package.
It is not yet known if the Isakson tax credit will be embraced. While it does have one Democratic cosponsor, the credit has 22 Republican sponsors and is also the centerpiece of a large Republican proposal. The Senate Finance Committee generally operates on a bipartisan basis. Nonetheless, the idea of a credit is still under consideration, though such a credit may be structured differently from the Isakson bill. Senate timing, however, is uncertain.
|Court Rules Against HUD on Seller-Funded Downpayment Assistance Programs|
|On February 29, 2008, a federal court in California ruled against the US Department of Housing and Urban Development (HUD) on seller funded downpayment assistance programs. The Nehemiah Corporation and AmericaDream, Inc. both filed suit against HUD challenging the merits of the rule and seeking an injunction blocking its implementation. The court concluded that HUD’s regulation is invalid and that HUD violated federal law by failing to explain why it reversed its favorable stance on downpayment assistance and by failing to consider reasonable alternatives to the regulation. A ruling from the US District Court for the District of Columbia is expected shortly.|
In October 2007, HUD published a final rule on Standards for Mortgagor’s Investment in Mortgaged Property that establishes that a prohibited source of downpayment assistance is a payment that consists, in whole in or in part, of funds provided by the seller or any entity that financially benefits from the transaction. Certain non-profits have raised concern because they were taking contributions from property sellers, subtracting a fee, and then granting the remaining money to buyers of the same property. In essence these non-profits created a “seller-funded” downpayment program, which NAR believes can result in home price inflation and risks for increased delinquency and foreclosure. In an effort to preserve qualified downpayment programs, NAR strongly urged HUD to construe the limits on non-profit downpayment assistance as narrowly as possible.
NAR supports downpayment assistance programs to help borrowers purchase a home. Downpayment programs take many different forms. For example, NAR has been a strong supporter of the American Dream Downpayment Initiative (ADDI). Other forms of downpayment assistance permitted with this ruling include assistance from family members, the borrower’s employer, state or local governments, and charitable organizations that do not rely on a party with a financial interest in the transaction.
|Higher FHA and GSE Loan Limits Published|
|On March 6, 2008, HUD published the new loan limits for FHA and Fannie Mae/Freddie Mac (the government sponsored entities, or GSEs). These new limits were required by the Economic Stimulus Act, signed by President Bush on February 13, 2008.|
The new loan limits for FHA and Fannie Mae and Freddie Mac are now calculated at 125 percent of the HUD published median area prices, with a floor of $271,050 for FHA and a floor of $417,000 for the GSEs, not to exceed $729,750. The loan limits are effective through December 31, 2008.
NAR research has indicated that increasing the FHA loan limits will help an additional 138,000 Americans achieve the dream of home ownership and will allow nearly 200,000 homeowners to refinance and potentially keep their home. In addition, NAR believes that increasing the loan limits for Fannie Mae and Freddie Mac will bolster the housing finance market, which continues to be severely stressed, by providing an immediate infusion of much needed liquidity to the nation’s mortgage market. An economic impact study conducted by NAR in January 2008 estimated that increasing the GSEs’ conforming loan limits would result in as many as 500,000 refinanced loans and could help reduce foreclosures by as much as 210,000. In addition, over 300,000 additional home sales could be generated, housing inventory would be reduced, and home prices would be strengthened by two to three percent. To find out the FHA and GSE loan limits for your community and other information about these important increases, visit NAR’s website at www.realtor.org/fha.