The Housing and Economic Recovery Act of 2008, HR 3221,  was just signed into law by President Bush.  Here are the highlights of the $300 billion program to help homeowners in trouble:

1.  You must live in your home:  this means no investors may take advantage of this program.
2.  It applies to loans which were issued between January 2005 and June 2007.  This is the next wave of sub-prime loans about to come into default.
3.  Homeowners must be spending at least 31% of their gross monthly income on their mortgage.
4.  They may be current or in default, it doesn’t matter, as long as they can demonstrate inability to pay.
5.  They must retire any other debt on the home:  lines of credit or home equity loans.  *(This is going to narrow the candidates)
6.  The homeowner will not be able to take another home equity loan for 5 years, unless it is for normal maintenance, and they must get FHA approval.  It must not be more than 95% of the home’s value.

What are the stipulations which lenders must agree to?

1.  The lender has to write down the value of the loan to 90% of the current value.  An FHA appraisal determines the value.
     * Lenders will only agree if they think the’ll lose less than they would through foreclosure.
2.  The old lender writes off fees and penalties of the old mortgage and accepts the proceeds as “pain-in-full”.  Lender must pay FHA a 3% premium upfront. 

What are the costs to the buyer?

1.  A loan origination fee, usually paid over the life of the loan with a slightly higher interest rate.
2.  An insurance premium, which is 1.5% of the principle anually.
3.  There are strings attached:
      a.  If the homeowner sells the house in the second year, they must share 90% of any profit with FHA.  The 3rd year, they must share 80%, the 4th 70%,
          in increasing 10% increments until 50%. 
      b.  There is a 3% exit fee due to FHA if the homeowner sells or refinances.

Who will benefit the most from this program?

Areas where values have dropped 30% or more will benefit the most.  California and Florida are in the top ten areas.

_____________________________________________________________________________________________________________________________
I received several petitions before the law passed, and several since the law was passed.  The subject of these petitions is the elimination of the controversial charitable programs which allow the seller to contribute to the buyer’s closing costs.  At a time when 1.)  lenders are tightening their stipulations, making it hard for buyers to get the financing, even with good credit and 2.)  gas prices and inflation are eating up all people’s income, making it doubly hard to save…

Does it make sense to take away the programs that give first-time buyers the opportunity to get into home-ownership? 

When the inventory is at an all-time high, and sellers with equity are saying, “Sure, I’ll gladly pay your closing costs… just buy my house instead of the other 2000+ homes out there!” 

Needless to say, I’ve signed a few petitions and will sign more.  In the mean time, if you’re considering an FHA loan and you want to take advantage of the Nehemiah program or the Ameridream,  get approved by October 1st. 

                         
  Search for Homes          What’s My Home Worth?

    The Highland Real Estate Group                     
              Chris & Karen Highland
                   301-831-9947
             Real Estate Teams, LLC
                 isell4u2@msn.com