Overview
The bill is divided into three Divisions designated A, B and C and each has several Titles. The major
subjects covered include:
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Loan Banks (the GSEs) by creating a new regulator and regulatory requirements;
the event of financial crisis;
a fund to help prevent foreclosures and facilitate affordable housing;
for states to purchase and redevelop foreclosed properties;
borrowers into fixed-rate FHA mortgage products;
minimum qualifications and assigning responsibility for establishing requirements for those states not
enacting licensing laws to HUD;
months, and extends the six percent mortgage rate cap for one year after active duty;
mitigation activities;
and expands the Low-Income Housing Tax Credit (LIHTC);
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Focus on Higher Loan Limits
greater of $417,000 (with increased limits for other single-family properties up to four units) or 115
percent of the local area median home price, as determined by HUD, up to a cap of 150 percent of the
GSE limit of $417,000 for a one-unit property or $625,500. By January 1, the new GSE regulator will
set the GSE loan limit annually based on home prices. The new GSE loan limits will go into effect after
the limits in the Economic Stimulus Act expire on December 31, 2008.
203(b) of the National Housing Act for single-family, one-unit properties (with increased limits for other
single-family properties up to four units) to the lesser of 115 percent of the local area median home
price, as determined by HUD (but no lower than a floor of 65 percent of $417,000) or 150 percent of
the GSE limit of $417,000 or $625,500. The mortgage amount also cannot exceed 100 percent of
the property’s appraised value. Note on FHA single-family loan limit: This new FHA loan limit will not go
into effect until after the limits in the Economic Stimulus Act expire on December 31, 2008.
based upon the rate of inflation.
Homeowners” program, at 132 percent of the 2007 conforming loan limit ($417,000) or $550,440.
amount” (for loans above $144,000) shall be 25 percent of the higher of: 1) the GSE loan limit
($417,000), or 2) 125 percent of the area median home price for a single-family, one-unit property,
not to exceed 175 percent of the GSE loan limit ($729,750). After December 31, 2008, the VA’s
guarantee for loans above $144,000 is 25 percent of the new GSE loan limit base or the limits for
high cost areas as described above.
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DIVISION A — Housing Finance Reform
TITLE I — Reform of Regulation of Enterprises (Division A, Title I)
Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) replacing the Office of Federal
Housing Enterprise Oversight (OFHEO), the Department of Housing and Urban Development (HUD)
(except for Fair Housing regulation) and the Federal Housing Finance Board (FHFB).
mortgages the GSEs’ retain in their own portfolios.
approval before offering any new product except for products related to either their automated
loan underwriting systems; or modifications to mortgage terms, conditions or underwriting criteria.
Requires FHFA to seek input from the public prior to making a decision. Authorizes FHFA to review
existing activities of the GSEs.
additional options to deal with a financially troubled GSE, including shutting it down and replacing it
with another entity.
very low-income families. Goals are annual and set as a percentage of the regulated entity’s singlefamily
and multi-family business lines. Revisions to the current goals framework include separate
goals for purchase money and refinance transactions, and procedures for adjusting goals under
unique circumstances. The FHFA also has stronger enforcement powers for noncompliance, including
cease and desist powers. Requires FHFA to assess and report to Congress on whether disparities
exist between interest rates on loans to minorities and non-minorities. Disparities will also be
referred to the appropriate regulatory agency. In addition to Fannie Mae and Freddie Mac, affordable
housing goals also apply to the FHLBanks’ mortgage purchase programs. Creates a new duty for the
enterprises to lead the industry in developing loan products and flexible underwriting guidelines for:
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of credit of Fannie Mae, Freddie Mac, and the FHLBanks. Treasury has standby authority to buy Fannie
Mae, Freddie Mac or FHLBank stock to provide confidence in the GSEs and stabilize housing finance
markets. Prior to exercising these authorities, Treasury must determine that an emergency exists
and action is necessary to stabilize markets, maintain liquidity and protect the taxpayers. Provides
additional oversight by requiring the Federal Reserve and Treasury to consult with FHFA on issues
concerning the safety and soundness of the GSEs and use of the standby authority. These provisions
expire on December 31, 2009.
activities. FHFA must seek demographic diversity among staffing at all levels commensurate with the
U.S. population.
Affordable Housing Trust Fund (Division A, Title I, Subtitle B)
points for each dollar of “total new business purchases” and transfer 65 percent to the Secretary
of HUD to fund an Affordable Housing Trust Fund. In the first year, the fund will subsidize the
Hope for Homeowners program. Thereafter, funds will be allocated to states using a needs-based
formula in order to provide affordable housing for extremely low- and very low-income households.
The remaining 35 percent will be transferred to a “Capital Magnets Fund” maintained by the Treasury
Department to attract investments in affordable housing and related neighborhood revitalization.
TITLE II — Federal Home Loan Banks (Division A, Title II)
Fannie Mae / Freddie Mac when taking supervisory action. Permits FHFA to reduce the number
of FHLBanks below the current restriction of eight. Requires FHFA to conduct two studies:
1) The benefits and risks of authorizing FHLBanks to securitize mortgages; 2) The extent to which
collateral for FHLBank advances complies with the interagency guidance on nontraditional mortgage
products.
Permits mergers between FHLBanks with FHFA’s approval. Raises the total assets requirement to
be considered a Community Financial Institution from $500 million to $1 billion. Permits Community
Development Financial Institutions to be FHLBank members.
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TITLE III — Transfer of Functions, Personnel and Property
of OFHEO and FHFB (Division A, Title III)
and the Federal Housing Finance Board (FHFB) and transfers their functions and employees to Federal
Housing Finance Agency (FHFA) along with certain employees of HUD.
TITLE IV — Hope for Homeowners (Division A, Title IV)
$300 billion in FHA mortgage insurance authority. Under the program, principal balance and interest
rate for eligible borrowers is reduced through refinancing into new, affordable FHA-insured loans based
on current property values. Loans will be eligible for securitization with Ginnie Mae.
representations and warranties the program’s governing body (Board) will require or if the borrower
of the new loan fails to make the first payment on the FHA loan.
Borrowers must have debt-to-income ratios greater than 31 percent (or a higher ratio set by the Board)
as of March 1, 2008. Borrowers must certify they did not intentionally default on the original mortgage or
other debts or furnish false information (five year jail time for false statements) to obtain the FHA loan.
Borrower not eligible if convicted of fraud or previously defaulted on government loan. Borrower’s income
must be fully documented through two most recent tax returns and meet other standards established by
the program’s governing board or HUD. Eligible borrower may only have one primary residence.
property’s current value. Principal amount cannot exceed 132 percent of the 2007 Freddie Mac
loan limits, or $550,440. Board establishes reasonable limitation on origination fees. Prohibits junior
liens for five years.
90 percent loan-to-value requirement. Also, requires waiver of prepayment penalties and fees
related to default or delinquency.
refinance. Borrower pays 1.5 percent premium annually.
or the loan is refinanced. Homeowner’s share of newly created equity will be phased-in over five years.
After five years, homeowner and government each will share in 50 percent of the equity. Program’s
governing board establishes standards for sharing future appreciation owed to HUD with subordinate
lienholders.
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servicers to “maximize the net present value of the pooled mortgages in an investment to all investors
and parties having a direct or indirect interest.” The duty does not supersede servicing contracts to
the contrary. Also would deem servicers to act in the best interests of all investors if the servicer
implements a refinance or modifies a loan, meeting certain conditions such as being in default,
through the Hope for Homeowners plan.
TITLE V — S.A.F.E. MORTGAGE LICENSING ACT (Division A, Title V)
Bank Supervisors (CSBS) and American Association of Residential Mortgage Regulators (AARMR)
to establish a Nationwide Mortgage Licensing System and Registry for residential loan originators.
Registry is to accomplish several objectives including establishing means by which residential
mortgage loan originators would, “to the greatest extent possible, be required to act in the best
interests of the consumer.” “States” includes all U.S. states, the District of Columbia, any territory
of the United States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands,
the Virgin Islands and the Northern Mariana Islands.
mortgage terms except administrative, clerical personnel or those who only perform real estate
brokerage activities or who are only involved in extensions of credit relating to time shares.
originators including that they must: never have had an originator license previously revoked; pled
guilty or been convicted of a felony during the seven year period prior to licensing or at any time if
such felony involved fraud, dishonesty, breach of trust or money laundering; demonstrate financial
responsibility, character and general fitness; complete pre-licensing educational requirements;
pass a written test; and meet either net worth or a surety bond requirement, or pay into a State fund.
system for the licensing and registration of loan originators for any state that fails to establish a state
system within one year from enactment or two years for states where legislatures meet biennially.
originators for federally regulated bank and thrift institutions and their subsidiaries. Fingerprints and
personal experience information on these originators is to be furnished to the Nationwide Mortgage
Licensing System and Registry.
of licensing and registration provisions.
six months after enactment on appropriate legislative reforms to RESPA to promote more transparent
disclosures, allowing consumers to better shop and compare loan terms and settlement costs.
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TITLE VI — MISCELLANEOUS (Division A, Title VI)
and Freddie Mac mortgage guarantee fees (G Fees). Study will analyze topics such as how the
G Fee is calculated across product types and the extent to which it differs by volume and originator
characteristics. The study will also identify G Fee revenues earned and costs incurred from
guaranteeing mortgages. FHFA also must study and report to Congress on ways to improve the overall
default risk evaluation of residential mortgages, including processes or technologies to provide
standardized risk measures.
project-based Section 8 contracts, allowing multifamily housing owners to get higher rents while
protecting tenants from paying higher rents or being displaced.
by the FDIC to administer the deposits and liabilities of a failed bank or savings association.
support for local government requirements for holders of foreclosed properties to maintain them.
DIVISION B — Foreclosure Prevention
TITLE I — FHA Modernization Act of 2008 (Division B, Title I)
SUBTITLE A — Building American Homeownership (Division B, Title I)
at least 3.5 percent cash or its equivalent investment by mortgagor. Prohibits seller-funded down
payment assistance but allows other down payment sources such as Community Development Block
Grants (CDBG) and HOME assistance. Permits amounts borrowed from a family member to be treated
as cash or cash equivalent as long as any lien for repayment is subordinate and the total liens do
not exceed 100 percent of the value of the property plus appraisal, inspection and other fees. The
down payment assistance limitation applies where the mortgagee has issued credit approval for
the borrower on or after October 1, 2008. The October 1, 2008 effective date is intended to protect
homebuyers and homeowners refinancing from a sudden change in program requirements.
$417,000 for a one-unit single-family property. Also limits origination fees to two percent of the maximum
claim amount up to $200,000 plus one percent of any maximum claim amount exceeding $200,000 to a
total cap of $6,000 (adjusted in increments of $500 annually based on the Consumer Price Index).
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insurance activity” unless they prove to HUD they maintain appropriate firewalls to ensure originators
do not have an incentive to sell other products. Also prohibits lender or any other party from
conditioning the HECM on purchase of other financial or insurance products, except hazard and
other peril insurance and title insurance or other products that are customary and normal as
determined by HUD.
improvements and adds a percentage limitation on energy efficient mortgages insured each year.
automated process for providing alternative credit rating information for borrowers and potential
borrowers who have insufficient credit histories to determine their creditworthiness.
processes and program performance, eliminating fraud and providing appropriate staffing in connection
with FHA programs.
demonstration program to test the effectiveness of alternative forms for pre-purchase homeownership
counseling for eligible homebuyers.
insurance premiums above the limits as of October 1, 2006 until October 1, 2009. HUD may only
increase rates based upon determination that positive credit subsidy will result if no increase and
after 30-day notice to the Senate Banking and House Financial Services Committee and
Register
premium program for twelve months beginning on October 1, 2008. The October 1, 2008 effective
date for the provision is intended to protect borrowers from a sudden change in program requirements
and permit a cessation of the current program.
SUBTITLE B — Manufactured Housing Loan Modernization
(Division B, Title I)
of sections 3, 8, 16, 17, 18 and 19 of RESPA apply to the sale of a manufactured home financed with
an FHA-insured loan as well as services rendered in connection with such transactions.
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TITLE II — Mortgage Foreclosure Protections for Service Members
(Division B, Title II)
or forestall foreclosures on homes owned by military personnel.
90 days to nine months following the termination of a service member’s active duty. These
protections revert back to 90 days on January 1, 2011.
termination of active duty. Defines interest as all charges (except bona fide insurance).
TITLE III — Emergency Assistance for the Redevelopment
of Abandoned and Foreclosed Homes (Division B, Title III)
abandoned and foreclosed homes and residential properties.
according to need, considering: 1) the percentage of foreclosed homes; 2) the percentage of homes
financed by a subprime mortgage; and 3) the percentage of loans in default or delinquent. All funds
appropriated must help individuals and families whose income does not exceed 120 percent of
area median income, with 25 percent of funds appropriated to benefit individuals or families whose
incomes do not exceed 50 percent of the area median income.
by the government to be at a discount from the current market appraised value, while the sales of
residential properties that have been improved under this appropriation, shall be in an amount equal
to or less than the cost to acquire and redevelop or rehabilitate the property. Rehabilitations must
be for code compliance purposes or to increase energy efficiency. For five years following enactment,
any revenue generated from the sale, rental or rehabilitation of the property that exceeds the cost to
acquire and develop
the property will revert to the state. After five years, such funds go to the U.S. Treasury.
TITLE IV — Housing Counseling Resources (Division B, Title IV)
available through December 31, 2008 for foreclosure mitigation activities. Requires eligible recipients
of NRC funds to identify and coordinate with non-profit organizations operating national or statewide
toll-free foreclosure prevention hotlines.
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TITLE V — Mortgage Disclosure Improvement Act (Division B, Title V)
disclosures within three days of application. Also requires disclosure seven days before closing
and any correction of an APR three days before closing.
a fee for a credit report.
transactions: “You are not required to complete this agreement merely because you have
received these disclosures or signed a loan application.”
through examples, including how monthly payments adjust based on interest rate changes and the
maximum payment.
TITLE VI — Veterans Housing Matters (Division B, Title VI)
and structural alterations to residences of permanently disabled service members.
TITLE VII — Small Public Housing Authorities Paperwork Reduction Act
(Division B, Title VII)
from the requirement of submitting an annual plan to HUD. Only PHAs that have a passing score under
HUD’s Section 8 management
assessment program are exempt.
TITLE VIII — Housing Preservation (Division B, Title VIII)
SUBTITLE A — Preservation under Federal Housing Programs
(Division B, Title VIII)
programs.
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SUBTITLE B — Coordination of Federal Housing Programs
and Tax Incentives for Housing (Division B, Title VIII)
administrative and procedural changes to expedite approval of multifamily housing projects under
HUD’s jurisdiction involving low-income housing tax credits and existing public housing and assisted
housing projects where the Secretary’s approval is necessary.
TITLE IX — Miscellaneous (Division B, Title IX)
reserves amounts for grants to state educational agencies for children, youths and their families
who have become homeless due to home foreclosure.
enactment in conjunction with the Administrator of the Environmental Protection Agency (EPA), to
consult with the residential mortgage industry and states to develop recommendations to eliminate
the barriers that exist to increasing the availability, use and purchase of energy efficiency mortgages
and report to Congress such recommendations.
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DIVISION C — Tax-Related Provisions
TITLE I — Housing Tax Incentives (Division C, Title I)
homebuyer of a principal residence in the United States from April 9, 2008 through April 1, 2009
eligible for a tax credit not to exceed $7,500 (to be paid back over 15 years). Credit will begin to
phase out if single taxpayer’s income exceeds $75,000 per year or the couple’s income exceeds
$150,000.
and increases the dollar amount of the LIHTC ceiling for each state for calendar years 2008 and 2009
by $0.20. In addition, the prohibition against using tax credits with Section 8 moderate rehabilitation
projects is repealed.
pay state and local property taxes for the tax year 2008 and forward, of the lesser of the amount
allowable as a deduction under state and local taxes or $500 ($1,000 in the case of a joint return).
LIHTC and Rehabilitation Credit.
as tax-exempt bonds through 2010.
written in the statute. The proceeds of the increase in ceiling may be used to refinance a mortgage
on a residence which was originally financed through a subprime loan made after December 31, 2001
and before January 1, 2008. In addition, the bill repeals the Alternative Minimum Tax on tax-exempt
interest.
TITLE II — Reforms Related to Real Estate Investment Trusts
(Division C, Title II)
transactions and allows healthcare facilities, such as nursing homes, to have qualifying income.
TITLE III — Revenue Provisions (Division C, Title III)
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2008 and July 1
couples
receive partial credit depending on their income
level
liability. Therefore, persons making below $75,000
will owe the government $7,500 less than their
current tax liability. It is not a deduction. It is an
actual tax credit. However, it must be paid back over
a period of 15 years starting two years after the
purchase year OR when the home is sold if there are
sufficient capital gains.
Housing Collapse Ahead? Not According to the DataBy Charles W. Calomiris, Stanley D. Longhofer and William Miles
Turmoil in the housing market has led to fears that home prices will drop precipitously, particularly if foreclosures force large numbers of homes onto the market in the coming year. Recently, these fears have driven financial stocks down and led to the government rescue of Fannie Mae and Freddie Mac. But the projected losses have been wildly exaggerated. Most Americans have not experienced any significant decline in the value of their homes — nor are they likely to.
Only four states — Arizona, California, Florida and Nevada — have had declines of more than 4% in home prices over the past year, according to the house price index of the Office of Federal Housing Enterprise Oversight. Some worry that OFHEO's index may be missing the full extent of the crisis because it doesn't include very high-priced homes with "jumbo" mortgages or homes bought with subprime loans — the ones being hit hardest. While one could argue that the index would be more representative if it included these transactions, the properties it does include represent more than three-quarters of U.S. homes.
The OFHEO index provides broad coverage of large and small markets across the country, and each home is weighted equally. Furthermore, excluding subprime mortgages has an advantage — doing so makes the index a more representative measure of the homes owned by middle-class families. Fire-sale prices from distressed sales of subprime mortgages exaggerate the declines that patient sellers are likely to experience.
This spring, it was much reported that the Standard & Poor's/Case-Shiller housing price index recorded a 14.1% decline from March 2007 to March 2008, and there is every indication that the index's June results will also be down significantly. But this is a poor measure of what is happening to the value of most homes. The Case-Shiller index includes no data from 13 states (representing 11% of the U.S. housing stock) and offers only partial coverage of 29 others (with 79% of U.S. housing). Homes in the areas omitted or incompletely covered appreciated at a slower pace during the housing boom, and their values have been more resilient over the past two years, so the data behind the index are biased toward the markets most susceptible to dramatic swings.
Also, the Case-Shiller index weights transactions by value. For example, it gives eight times as much weight to the sale of an $800,000 home as it does to a $100,000 home, meaning it is particularly sensitive to what is happening with high-priced homes in the largest, most expensive markets.
But even if price declines have been small so far, how can one gauge whether the increase in foreclosures will lead to accelerating decline? In our own research, we use quarterly historical (1981-2007) state-level data on the OFHEO price index, foreclosures, home sales, permits and employment to explore how foreclosure shocks affect future home prices.
We conclude that declines in house prices are highly likely to remain small. Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states — but will not collapse.
One reason for this is that the effect of foreclosure shocks on house prices is small. Furthermore, other fundamental factors (such as employment growth and a slowing of the growth of the housing supply over the past year and a half) will cushion the impact of foreclosures.
We constructed several forecasting models. Even under an extreme worst-case scenario for foreclosures, our conclusion was that U.S. house prices just aren't going to fall by very much in the next two years. In our worst-case scenario, the average cumulative decline is about 5%, and only 12 states experience declines greater than 6% by the end of 2009.
The fact that home prices will remain stable does not imply that the housing downturn has been trivial. Indeed, the price stickiness has been reflected in the lower sales volumes and declining housing starts that we have witnessed for over a year. These factors have already slowed GDP growth. Many developers and financial institutions have been badly hurt. And some home owners who had the misfortune to buy in the hottest markets have experienced significant declines in value and will experience further declines.
But fears of a huge loss in home values for most home owners — and especially for middle-income home owners — across the United States, and fears of the devastating losses by financial institutions that would accompany them, are greatly overblown.
Charles W. Calomiris is Henry Kaufman professor of financial institutions at Columbia University and a visiting research fellow at the American Enterprise Institute. Stanley D. Longhofer directs the Center for Real Estate at Wichita State University's business school. William Miles is an associate professor of economics and Barton fellow at Wichita State.
This article originally appeared in the Aug. 4, 2008 Washington Post
