Housing Rescue Bill On President’s Desk - Sunday, July 27, 2008

Housing Rescue Bill has passed both chambers of Congress when it passed the Senate on Saturday. Points of the bill:

• Goes into effect October 1 and President likely to sign it to law this week
• Borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA)
• Qualified borrowers must live in their homes
• They must have loans that were issued between January 2005 and June 2007
• They must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.
• They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.
• They must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.
• Requires case-by-case approval from the FHA
• Total debt cannot exceed 95% of the home's appraised value at the time
• The program is voluntary, so the original lender(s) must agree to rework the loan before a homeowner starts the application process. Each loan must be underwritten by an FHA-approved lender and will be evaluated on a case-by-case basis. Homes will be re-appraised and banks will verify income statements, bank accounts, job histories and credit scores.
• Although there are little up-front costs for borrowers, consumers receiving a refinanced loan must agree to certain terms, including paying an insurance premium of 1.5 percent of the principal annually to the FHA.

In addition, the measure also would permanently increase the cap on mortgage loans guaranteed by Fannie and Freddie to a maximum of $625,000 from $417,000. (CNNMoney, 7/26; CAR, 7/23)

In Short:

• Two of the most commonly reported barriers to homebuying are high down payment requirements and high home prices. The majority of Americans feel that it has become more difficult to obtain mortgages and that the application process is more difficult than a year ago. Consumers also believe that the terms they are offered are too demanding given the weak economic conditions. Many of today’s loans require home buyers to put down at least 5 percent, but most market experts recommend a minimum of 10 percent. Areas with high foreclosure rates may require 20 percent down and markets that have been severely impacted by foreclosures such as Reno, Nev. may require a 25 percent down payment. However, home buyers have reason to be optimistic. If signed by President Bush as expected, the American Housing Rescue and Foreclosure Prevention Act would allow states to issue an additional $11 billion to first-time buyers and homeowners with subprime mortgages.
• Although interest rates remain low by historic standards, concerns over the sustainability of Fannie Mae and Freddie Mac have contributed to an increase in interest rates. Investors who purchase these loans are wary and are demanding higher interest rates to offset the added perceived risk. The average 30-year, fixed-rate loan was up nearly a point two weeks ago, to 6.37 percent, compared with the year’s low of 5.48 percent, which was set in January.
• Credit ratings are playing an ever-increasing role among consumers seeking to purchase a new home or refinance an existing one. By improving their credit scores, Americans can save billions of dollars annually on interest payments. As of June 1, buyers with credit scores of less than 620 that put down less than 30 percent must pay a fee of 2.75 percent of their mortgage principal. Consumers with higher credit ratings were previously rewarded by not having these up-front fees imposed. Now, those with a credit score between 680 and 720 may be required to pay a 0.5 percent fee. Consumers can boost their credit scores and receive more favorable rates by keeping credit card utilization rates below 50 percent and avoiding exceeding the maximum limit on credit cards. (CAR, 7/25)

MORTGAGE INTEREST RATES DECLINE - Interest rates on the 30-year fixed-rate mortgage (FRM) averaged 6.26 percent with an average 0.6 point for the week ending July 17, down from an average of 6.37 percent the previous week and 6.73 percent a year ago. There is speculation that the Federal Reserve may not raise the overnight bank-lending rate this year after all. (CAR, 7/23)

HOUSING STARTS IN CALIFORNIA INCREASE 9.2 PERCENT IN JUNE - Building permits issued for single-family homes in California rose 9.2 percent to 3,954 in June compared with May but remain 54.9 percent below where they were for the same period a year ago, according to new data from the California Building Industry Association. (CAR, 7/23)

According to the Leading Real Estate Companies of the World®, a national network of about 700 brokers across the country, 59 percent of brokers report seeing stronger market conditions between May and July. Some 20 percent of the respondents also reported declines in inventory during this period and more buyers moving forward with serious home searches than in prior months. (CAR, 7/23)

Treasury Secretary Paulson calls bank system secure - Following the collapse of IndyMac, consumers are questioning the security of the U.S. banking system, although only a small percentage of banks are expected to fail. A bill aimed at stabilizing the housing market will assist borrowers and will allow the Treasury Department to increase its line of credit to Fannie Mae and Freddie Mac and purchase stock in the companies, if necessary. Reports show that both companies stand a better than 50 percent chance of weathering the current market without government aid. (LA Times, 7/21)

• Paulson assured IndyMac consumers that all funds fully insured by the Federal Deposit Insurance Corp. (FDIC) guarantee of $100,000 and below will remain safe. Several thousand depositors had accounts exceeding the FDIC guarantee and may not have been fully insured depending on how the accounts were structured. Deposits above $100,000 will be paid out at 50 percent of the value.
• Fearful of future loan defaults, investors have rapidly sold off shares in Fannie Mae and Freddie Mac. Combined, the two banks own or back approximately half of the nation’s $12 trillion in mortgage debt. Paulson is supporting a plan to ease the ability of Fannie and Freddie to borrow from the government, which in turn allows the Treasury Department to acquire stakes in both.
• Experts remain divided on when mortgage defaults will subside. Median housing prices have declined for 22 consecutive months, according to the NATIONAL ASSOCIATION OF REALTORS® (NAR). Some economists predict that the market will bottom out mid-2009, while others think the market is at or near the bottom now. (CAR, 7/25)

McCain vs. Obama on Real Estate – first in a series summarizes the stance between the leading presidential candidates regarding topics associated with real estate:

Foreclosures - Obama wants the government to step in to help homeowners facing foreclosure. McCain has gradually broadened his position to support government intervention, but wants stricter requirements for borrowers seeking aid. For greater details, check http://money.cnn.com/galleries/2008/news/0806/gallery.election_issues/6.html

Fast Facts:

• Calif. median home price - May 08: $384.840
• Calif. highest median home price by C.A.R. region May 08: Santa Barbara So. Coast $1,199.000
• Calif. lowest median home price by C.A.R. region May 08: High Desert $200,740
• Mortgage rates - week ending 07/17/08 30-yr. fixed: 6.26 Fees/points: 0.6% 15-yr. fixed: 5.78 Fees/points: 0.6% 1-yr. adjustable: 5.10 % Fees/points: 0.5% (CAR, 7/23)

Sources: California Association of REALTORS, CNNMoney, LA Times, RISMedia.

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