Sunday, August 3, 2008

The Housing Bill, Will it help?

I've had at least 20 emails asking about the Housing Bill. I was going to ignore them but they keep coming. I'm not 100% clear on the bill and judging by what I read many other people are just as unclear. The bill that was passed had some major differences from earlier versions. Some of these changes might help some might not and one will eventually cost us, the taxpayer a boat load of money. That would be the one that increases the limit on the national debt. But I guess when your 9 trillion in the hole, what's another trillion.....

Ok on to the bill, what does it do ( from the AP) with my comments in bold.

— Give the Treasury Department the power to extend Fannie Mae and Freddie Mac an unspecified line of credit and to buy their stock, if necessary, to prop up the mortgage companies. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation's total.

So Fannie and Freddie can buy as much JUNK mortgages as they want...gee great, and just think we get to pay for them.

— Allow qualified homeowners facing foreclosure to apply for lower fixed-rate, 30-year mortgages backed by loan guarantees from the Federal Housing Administration. The original lenders would have to agree to take a loss on their loans.

This is the one all the screwed homeowners are hoping will save them. It will undoubtedly save quite a lot of people but not everyone. Your mortgage must have been originated between Jan 2005 and July 2007 to qualify. Your bank has to agree to take a loss, you get a new mortgage for 90 of the current appraised value backed by the FHA. You still have to actually qualify for this new mortgage (full doc). There is one good part to this bailout. When you sell, you don't get to keep all the profits. You have to give back at least 50% of any profit you make to the FHA. If you sell the first year you give them all profit (like there will be any). You give back 10% less per year until it caps out at 50%. Even 30 years from now, you must give 50% of any profit back. There are also restrictions on this regarding your DTI, it has to be over a certain amount. In other words if you can afford the payments you don't get to cash in on this bailout. I'm still not 100% clear on how this all works. The gov thinks they will do 400,000 of these. With up to 2.5 million foreclosures expected over the next 3 years it may not have much effect. Another article I read said they expect up to 25% of the new loans to go bad (that seems way high to me). This starts Oct 1st so if you are set to lose your house in the next month or two you are still screwed.

Also unclear to me at this point is what will happen when there are multiple banks involved., Refi's, seconds etc. What about HELOC's? Are they going to be required to give back the Hummer or the Denali?

This will certainly lengthen the price correction, by how much is anyones guess. I would also like to know if these refinances will be posted as sales. If they are not included in the comps for an area it could also create a real mess when trying to calculate a home value.

— Create an independent regulator to oversee Fannie Mae and Freddie Mac. The regulator could establish minimum capital requirements for the two companies and limits on their portfolios. It would also have approval power over the pay packages of Fannie Mae and Freddie Mac executives.

blah, blah, blah

— Provide $3.9 billion in grants to communities with the highest foreclosure rates to buy foreclosed and abandoned properties.

Gee great, my tax money goes to buy a million shacks in a Detroit ghetto. Or about 5000 homes in California

— Give about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time homebuyers who bought homes between April 9, 2008, and July 1, 2009.

This seems like a good idea. But they have to pay that $7500 back at $500 a year, or in full if they sell the home. This is a tax break though and not actual cash to the buyer. If you don't pay $7500 in taxes your not going to get that much back. And on the flip side, this bill did eliminate down payment assistance programs for first time buyers. They eliminated free money down payment assistance programs and gave a loan against your tax bill.

— Put a cap of $625,500 on the loans Fannie Mae and Freddie Mac can buy in certain high-priced areas, and a cap in other areas of up to 15 percent above the median home price.

STUPID, STUPID, STUPID, Another attempt to keep home prices artificially inflated.

— Count any federal infusion for the mortgage giants under the debt limit, essentially capping how much the government could spend to stabilize the companies without further approval from Congress. As of Tuesday, the national debt that counts toward the limit stood at about $9.5 trillion, roughly $360 billion below the statutory ceiling.

This is the increase of the National Debt Limit. Another STUPID idea.

It's amazing to me that even with 70% of the population against this bill it sill passed by a landslide. I fully understand that something has to be done to ensure a total collapse of the banking system and the economy doesn't happen. But this bill is not the way to do it.


bigdog76 said...

I appreciate the post. One note on the $7500 tax credit you start paying that back 2 years after you claim it.

dgelz said...

"Put a cap of $625,500 on the loans Fannie Mae and Freddie Mac can buy in certain high-priced areas, and a cap in other areas of up to 15 percent above the median home price."

I agree 100% on just how STUPID this is. This bill will allow more buyers to purchase a home that is still incredibly overpriced. Yeah, now you may be able to get that loan at a decent lower interest rate, but realize the loan your asking for is too high...THE HOUSE YOU'RE BUYING ISN'T REALLY WORTH THAT MUCH!
Let home prices correct to the proper income to home-debt ratio. Then consider taking on the new loan.
They're trying to make you buy a house at a purchase price that still needs to come down.
Do your research, people...we're getting screwed!

golfer_X said...

They are trying but as usual when a committee, a congress or a group of experts get together you can pretty much count of a clusterfook.

I understand the need for the gov to prevent a complete financial meltdown. And I'm sure it's a far more complicated process than I can wrap my feeble mind around. However everything they have done so far seems either like fluff or like desperation. I fear they are taking us down the same road Japan took in the 90's. They are trying to stretch out the collapse and they should. Having trillions of dollars in losses in a very short time would be, well it would be really really bad. But they have to be careful not to stretch it out for too long. This could lead to a long period of Stagflation. And unlike the Japanese who still saved money during their boom and bust we are broke, we are worse than broke. We are up to our eyeballs in debt. And all that debt will make this hole much harder for us to climb out of than it was for the Japanese.

So tonight as I lay my head down to sleep I pray for the lunatics in Washington to do something different this time. Like possibly the right thing (whatever that may be).