If you are ignoring the housing bailout bill because
you think it benefits only troubled homeowners, you may miss out on a windfall.
The bill, expected to be passed by the Senate in the
next few days and then signed by President Bush, does offer incentives to
certain overextended borrowers and their mortgage lenders.
But it also includes many handouts to first-time
homebuyers, longtime homeowners, returning veterans and senior citizens seeking
to tap their home equity without getting hit with big fees. Millions of people
have the potential to benefit in some way.
Huge numbers of people buying homes for the first
time, for instance, will be eligible for what amounts to an interest-free loan
from the government. Meanwhile, older Americans will now be able to borrow more
and possibly pay less for reverse mortgages that allow them tap the equity in
their homes.
Whether larding up the bill with all these benefits is
good for taxpayers is another debate. But there is no shame in taking advantage
of what is offered. In fact, you would be foolish not to.
Here are some of the new benefits:
RENEGOTIATING MORTGAGES Part of the bill is
devoted to the creation of a program that may allow some people to cancel their
old mortgage loans and replace them with new fixed-rate loans lasting at least
30 years. The amount of the new loans would be no more than 90 percent of what
their property is actually worth now.
So who is eligible? You need to have originated your
troubled loan or loans on or before Jan. 1, 2008. The loans in question must be
on your primary residence. Vacation homes and investment properties are
ineligible. You will also need to verify your income, which many borrowers did
not have to do in recent years.
Also, as of March 1, 2008, your monthly housing
payment (including the principal on all your various mortgage payments,
interest, taxes and insurance) has to have been at least 31 percent of your
monthly household income. So if you were earning $5,000 a month and had housing
payments of $3,000, you are eligible. But if you had payments of just $1,400,
you would not be, presumably because that loan is affordable given the size of
your income.
Lenders, however, are not required to give you a
better deal under the new law, even if you do meet the qualifications. They may
not be willing to negotiate unless they think you are truly on the cusp of
foreclosure.
If you manage to get a new loan, you cannot take out a
home equity loan for at least five years after you get the new mortgage. You
will also have to pay a 1.5 percent fee each year on the remaining balance.
Finally, you have to hand over no less than 50 percent of any appreciation on
the home to the government once you sell. Sell the house in less than five
years, and you will have to turn over as much as all of the gain.
This program ends on Sept. 30, 2011. While it does not
officially take effect until Oct. 1, lenders may be willing to start their
negotiations with borrowers now.
BREAK FOR FIRST-TIME BUYERS If you are buying a
home for the first time, and it is your primary residence, you are eligible for
a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is
smaller. With a tax credit, you subtract the credit amount from the total you
would otherwise pay to the
,
there were about 2.5 million first-time home buyers in 2007. A large proportion
of them would have qualified for this credit, but whether it is enough to push
would-be buyers over the edge this year remains to be seen.
The tax credit is retroactive to home purchases on
April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1,
2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
ADDITIONAL DEDUCTION If you are a homeowner who
takes the standard deduction on your federal income taxes and does not itemize,
this one is for you. You can now take an additional federal tax deduction of
$500, or $1,000 if you are married and filing your tax returns jointly. Again,
this one is gravy; you get it in addition to the standard deduction.
Since itemizers are often people who pay a lot of
mortgage interest, this deduction will generally benefit people who pay little
or none, like those who have paid off their mortgages entirely or close to it.
There is one hitch here: you will need to report the property taxes you paid on
your tax form. If they are less than $500 (or $1,000 if you are married and
filing a joint return), your deduction will be limited to the amount of the
property tax you paid.
REVERSE MORTGAGE CHANGES Reverse mortgages allow
older Americans, generally 62 and older, to get a lump sum or a monthly check
that comes out of their home equity. They do not have to pay the money back
until they stop living there permanently or their heirs sell the house.
The problem with these loans, however, is that they
often come with high fees. Moreover, some salespeople pressure borrowers who are
applying for the loan to purchase annuities, long-term care insurance or other
financial products that are not necessarily in the borrower’s best interest.
The bill tries to address both issues. First, it
limits origination fees on reverse mortgages at 2 percent of any loan up to
$200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot
be forced to purchase an annuity or other financial or insurance product as a
condition of qualifying for a reverse mortgage.
Finally, the bill raises the maximum amount that
people can borrow. Before, the limits were set on a county by county basis,
according to
Bush signs housing rescue law
President enacts controversial measure that aims to help
borrowers, bolster the housing market and provide a fail-safe for Fannie and
Freddie.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: July 30, 2008: 7:47 AM EDT
NEW YORK
(CNNMoney.com) -- President Bush on Wednesday signed into law a sweeping
housing bill that aims to boost the struggling housing market and bolster
mortgage finance giants Fannie Mae and Freddie Mac.
The Senate voted 72-13 in favor of the bill on Saturday, after the House passed
it three days earlier.
"We look forward to put in place new authorities to improve confidence
and stability in markets, and to provide better oversight for Fannie Mae and
Freddie Mac," said White House spokesman Tony Fratto. "The Federal
Housing Administration will begin to implement new policies intended to keep
more deserving American families in their homes."
The new law, one of the most far-reaching on housing in decades, marks the
centerpiece of
Washington
's efforts to address the nation's housing meltdown.
The legislation has two principal objectives: to offer affordable
government-backed mortgages to homeowners at risk of foreclosure, and to bolster
Fannie and Freddie with a temporary rescue plan and a new, more stringent
regulator.
The White House last week reversed its long-standing threat to veto the bill.
In fact, the administration still objects to parts of the legislation, including
aid to states to buy foreclosed properties.
But the president decided to sign it since "oversight of the housing
government sponsored enterprises (GSEs) and the new temporary authorities
requested by [Treasury] Secretary [Henry] Paulson are urgently needed now, and
they'll contribute to confidence and stability in housing and financial
markets," Fratto said last week.
Helping at-risk borrowers
Provisions that will most directly affect consumers and communities include:
A larger role for the Federal Housing Administration. The FHA will be
allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for
at-risk borrowers in owner-occupied homes if their lenders agree to write down
loan balances to 90% of the homes' current appraised value.
The cost of the new FHA program - which would begin on Oct. 1 and be in place
for just a few years - will be funded by fees from Fannie and Freddie, along
with fees paid by both lenders and borrowers.
While the law authorizes the FHA to insure up to $300 billion in loans, the
CBO estimates that the agency is only likely to insure up to $68 billion and
help keep roughly 325,000 people in their homes. Those estimates were based on
the CBO's assessment of who is likely to qualify under the program and accounts
for a certain number likely to default anyway.
(Here
are more details on this provision.)
A stronger regulator for the GSEs. The new regulator will have a
greater say over how well funded the two government sponsored enterprises (GSEs)
are - a major concern in the markets that has sent stocks in both companies
plunging in the past two months.
A permanent increase in "conforming loan" limits. The law
will permanently increase the cap on the size of mortgages guaranteed by Fannie
and Freddie to a maximum of $625,500 from $417,000.
The FHA maximum loan limits for high-cost areas would also increase to a
maximum of $625,500. Higher loan limits will make it easier for borrowers to get
mortgages, because those mortgages are more likely to be traded if they are
considered conforming.
A new home-buyer credit. The new law includes a tax refund for
first-time home buyers worth up to 10% of a home's purchase price but no more
than $7,500.
The refund, however, serves more as an interest-free loan, since it would
have to be paid back over 15 years in equal installments.
A ban on down-payment assistance from sellers. The new law eliminates
a program that has allowed sellers to provide down payment assistance for FHA
loans.
The law would also increase to 3.5% from 3% the down payment requirement for
borrowers getting FHA loans.
A new affordable housing trust fund. The law establishes a permanent
fund to promote affordable housing. The fund will be paid for by fees from
Fannie and Freddie.
Grants to states to buy foreclosed properties. The law grants $4
billion to states to buy up and rehabilitate foreclosed properties. The White
House has opposed such funding, contending that it will benefit lenders and not
homeowners.
Bolster Fannie and Freddie
A late and controversial addition to the new housing law provides temporary
authority for the Treasury to lend a financial hand to Fannie Mae and Freddie
Mac if the Treasury deems it necessary to help stabilize markets.
Concerns over whether Fannie Mae (FNM,
Fortune
500) and Freddie Mac (FRE,
Fortune
500) will have enough money to weather future losses in the housing market
has sent shares plummeting in recent weeks. Since the beginning of June,
Fannie's stock price has dropped 57% and Freddie's plummeted 66%. For the past
year, they're both down roughly 85% as of the end of trade on Friday.
Fannie and Freddie guarantee the purchase and trade of mortgages and own or
back $5.2 trillion in mortgages.
The law includes provisions that let Treasury offer Fannie and Freddie an
unlimited line of credit and buy stock in the companies. The provisions expire
in 18 months.
Both critics and supporters of the Paulson plan have expressed concern that
loaning or investing money in the companies could leave taxpayers with a fat
bill to pay.
Treasury Secretary Paulson has said that merely having the powers in place
may boost confidence in the two companies enough to preclude the need for
Treasury to step in.
The Congressional Budget Office last week estimated the potential cost of a
rescue could be $25
billion. CBO said there is probably a better than 50% chance that Treasury
would not need to step in. It also said there is a 5% chance that Freddie's and
Fannie's losses could cost the government $100 billion.
First Published: July 30, 2008: 7:24 AM EDT
More information from National Association of Realtors: http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions?OpenDocument
