Relief to Struggling Homeowners!

On August 6th 2008, President Bush signed into law a new bill that aims to bring relief to struggling homeowners across the nation. The measure attacks not only the current crisis but also has pieces that aim to avoid the same problems in the future. The bill includes measures to establish an affordable housing fund financed by Fannie Mae and Freddie Mac; tighter government regulation on Fannie and Freddie; neighborhood grants; loan-limit changes; a pre-foreclosure counseling fund; tax cuts; and an expansion of housing credit programs. So what are these various aspects all about?

Immediate Relief to Struggling Homeowners

This new bill will allow homeowners struggling with mortgage payments to refinance into more affordable government backed mortgages rather than lose their home to foreclosure. It is believed that these government-backed mortgages will have looser qualifying criteria than a typical conventional or FHA mortgage.

More Government Power – Tighter Regulation

The United States Treasury will be given the power to extend an unlimited line of credit to Fannie Mae and Freddie Mac (Government Sponsored Entities or GSEs), the largest mortgage purchasers in the secondary mortgage market who have run into liquidity issues of late. The two GSEs currently back or own half of the nation’s total outstanding mortgages. As a result of these liquidity issues, the GSEs have been unable to lend and homeowners have been restricted in the amount of mortgage credit available. The credit line was previously capped at $2.25 billion. The unlimited line of credit is expected to remain in place until at least the end of 2009. With government help comes tighter regulation, it appears that the Treasury Department will step in and act as somewhat of a regulator to Fannie and Freddie.

Neighborhood Grants

In an effort to avoid further deterioration of the communities hit hardest by foreclosure, the new legislation will provide $3.9 billion for neighborhoods to buy and repair properties that have already been foreclosed on.

Permanent Loan Limit Changes

The measure also calls for a permanent increase to the loan limits that Fannie Mae and Freddie Mac will purchase to $625,000. It will also allow FHA to back mortgages up to 15% higher than the median home prices in certain areas. These changes are expected to open up financing options for a larger pool of homeowners specifically in high cost areas of the country such as California and Florida.


Other Key Parts of the Bill

$180 million has been devoted to pre-foreclosure counseling to struggling homeowners. This is an important part of the bill as it aims to help educate homeowners and hopefully avoid many of these problems in the future. Also in the plan is an effort to stimulate the housing industry by expanding the low income housing credit and making credit of up to $7,500 available for first time homebuyer assistance.

How About Some Numbers?

The new housing relief bill aims to help approximately 400,000 homeowners – many of whom are upside down on their mortgage (owe more than their home is worth) – a result of loose lending guidelines and a declining real estate market. It has been estimated that up to $300 billion has been allocated to the Federal Housing Administration (FHA) to back these new refinanced mortgages. Of course, before being approved for a refinance, the borrower would need to show that they can afford the new loan and their lender must agree to take a loss on the existing mortgage.

It has yet to be determined if this new law will aid in recovery of our housing industry but it appears that this is certainly a step in the right direction. It is important that our law makers have not only taken measures to relieve the current crisis but have also put safeguards in place that will hopefully avoid this same collapse in the future.