Summary of the “Housing and Economic Recovery Act of 2008"

Crofton, MD Bill Vourazeris Here is a summary of the new bill That President Bush just signed.

Summary of the “Housing and Economic Recovery Act of 2008"

A. Summary of the “Federal Housing Finance Regulatory Reform Act of 2008"

This legislation strengthens and modernizes the regulation of the housing government-sponsored enterprises – Fannie Mae and Freddie Mac (the enterprises) and the Federal Home Loan Banks (FHLBs or Banks) – and expands the housing mission of these GSEs. In addition, it creates a new program at FHA that will help at least 400,000 families save their homes from foreclosure by providing for new FHA loans after lenders take deep discounts.

I. Safety and Soundness Regulation of the Housing GSEs

The “Federal Housing Finance Regulatory Reform Act of 2008" establishes a new, independent, “world class” regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the housing government-sponsored enterprises (GSEs). The legislation endows this regulator with broad new authority, equivalent to the authority of other federal financial regulators, to ensure the safe and sound operations of the GSEs, including the power to:

establish capital standards;

establish prudential management standards, including internal controls, audits, risk management, and management of the portfolio;

enforce its orders through cease and desist authority, civil money penalties, and the authority to remove officers and directors;

restrict asset growth and capital distributions for undercapitalized institutions;

put a regulated entity into receivership;

and review and approve (subject to notice and comment) new product offerings.

II. Mission Improvement

The new legislation also significantly enhances the affordable housing component of the GSEs’ mission, and expands the number of families Fannie Mae and Freddie Mac (the enterprises) can serve by raising the loan limits in high cost areas (areas with median house prices that are higher than the regular conforming limit) to 150% of the conforming loan limit. Currently, this would be $625,000.
For the enterprises, the legislation tightens targeting requirements of the affordable housing goals, and rewrites those goals to ensure that the enterprises provide liquidity to both ownership and rental housing markets for low and very-low income families. The legislation requires the enterprises to serve a variety of underserved markets, such as rural areas, manufactured housing, and the preservation market. The legislation improves reporting requirements for affordable housing activities, including the expansion of the public use data base, and strengthens the new regulator’s ability to enforce compliance with the housing goals.
Finally, the legislation creates a new Housing Trust Fund and a Capital Magnet Fund, financed by annual contributions from the enterprises, which will used for the construction of affordable rental housing.

For the Federal Home Loan Banks (FHLBs), the legislation requires new affordable housing goals similar to those that apply to the enterprises for FHLB mortgage purchase programs. The legislation also requires the FHLBs to create a public use data base for such programs. Treasury-certified Community Development Financial Institutions (CDFIs) would become eligible to join FHLBs. Finally, community financial institution members of the FHLBs may use FHLB advances for community development purposes.

B. Summary of the “HOPE for Homeowners Act of 2008"

The “HOPE for Homeowners Act of 2008" creates a new, temporary, voluntary program within FHA to back FHA-insured mortgages to distressed borrowers. The new mortgages offered by FHA-approved lenders will refinance distressed loans at a significant discount for owner-occupants at risk of losing their homes to foreclosure. In exchange, homeowners will share future appreciation with FHA.
The program is built on five principles:

1. Long-term affordability. The program is built on the idea, expressed by Federal Reserve Chairman Bernanke, that creating new equity for troubled homeowners is likely to be a more effective way to avoid foreclosures. New loans will be based on a family’s ability to repay the loan, ensuring affordability and sustainable homeownership.

2. No investor or lender bailout. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure.

3. No windfall for borrowers. Borrowers will share their new equity and future appreciation equally with FHA. Borrowers will pay for the FHA insurance.

4. Voluntary participation. This will be a voluntary program. No lenders, servicers, or investors will be compelled to participate.

5. Restore confidence, liquidity, and transparency. Credit markets are fearful and frozen in part because banks and other financial institutions do not know what their subprime mortgages and related securities are worth. The uncertainty is forcing lenders to hoard capital and stop the lending necessary for economic growth. This program will help restore confidence and get markets flowing again.

Program Oversight. The new program will be overseen by a Board made up of the Secretary of HUD, the Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the Chairman of the Federal Deposit Insurance Corporation (FDIC). The Board will have the authority to develop standards within the framework of the legislation.
Eligible Borrowers. Only owner-occupants who are unable to afford their mortgage payments are eligible for the program. No investors or investor properties will qualify. Homeowners must certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt to income ratio greater than 31 percent as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.

New Loan Amount. The size of the new FHA-insured loan will be lesser of the amount the borrower can afford to repay, as determined by the current affordability requirements of FHA; or, 90% of the current value of the home. Loans must be 30-year, fixed rate loans.
Equity & Appreciation Sharing. In order to avoid a windfall to the borrower created by the new 90% loan-to-value FHA-insured mortgage, the borrower must share the newly-created equity and future appreciation equally with FHA. This obligation will continue until the borrower sells the home or refinances the FHA-insured mortgage. Moreover, the homeowner’s access to the newly created equity will be phased-in over 5 years.
Eligible Mortgages. In order to protect against adverse selection, the program prohibits the Secretary from paying an insurance claim whenever the representations and warranties required to be made by lenders are violated, or in cases in which a borrower has an early payment default and misses the first payment. The Act provides the Board the authority to establish other protections against adverse selection, such as requiring “seasoning” for certain higher risk loans before they can be insured under the program. Appraisers of property insured by FHA must be certified by the state where the property is located, or by a nationally recognized professional appraisal organization, and have “demonstrated verifiable education” in FHA appraisal requirements.
Existing Subordinate Liens. Before participating in this program, all subordinate liens must be extinguished. This will have to be done through negotiation with the first lien holder.
Qualified Safe Harbor. The legislation provides servicers with an incentive to participate in the program by offering a safe harbor against legal liability.
Program Size. The program is authorized to insure up to $300 billion in mortgages and is expected to serve approximately 400,000 homeowners.
Program Sunset. The program will begin October 1, 2008 and sunset on September 30, 2011. CBO say the program will net nearly $250 million for taxpayers. The program is paid for by using part of the Affordable Housing Trust Fund; the GSE bill provides a further $2 billion cushion for the government by establishing a reserve fund at Treasury over ten years. If the program costs less than projected, the unused funds are returned to the Affordable Housing Trust Fund. If the program more than pays for itself (as was the case during the Roosevelt Administration), any excess savings are dedicated to reducing the national debt.

C. Summary of the “Foreclosure Prevention Act of 2008"
The Foreclosure bill passed by the Senate on April 10 contains the following provisions designed to address the problems faced by families and their communities in light of the foreclosure crisis:

FHA Modernization. To ensure that additional families can access the FHA program, which provides safe, fixed-rate mortgages, significant FHA reform is included to modernize, streamline and expand the reach of the FHA program. Under this bill, the FHA loan limit is


increased from 95% to 110% of area median home price with a cap at 150% of GSE limit (currently, $625,000), allowing families in all areas of the country to access homeownership through FHA. Downpayments of 3.5% will be required for any FHA loan and counseling requirements are enhanced to help provide for stable homeownership.

Assisting Communities Devastated by Foreclosures. Homes that have been foreclosed upon and are sitting unoccupied lead to declines in neighboring house values, increased crime and significant disinvestment. To ensure that communities can mitigate these harmful effects of foreclosures, $3.92 billion is provided to communities hardest hit by foreclosures and delinquencies. These supplemental Community Development Block Grant Funds will be used to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in house values of neighboring homes.


Providing Pre-Foreclosure Counseling for Families in Need. To help families avoid foreclosure, this bill provides $150 million in additional funding for housing counseling. These funds will be distributed by the Neighborhood Reinvestment Corporation by the end of 2008 to ensure families can quickly get the help they need. As many as 250,000 additional families connect with their mortgage servicer or lender to explore options that will keep them in their homes as a result of these counseling funds. In addition, $30 million is provided to help provide legal services to distressed borrowers.


Enhancing Mortgage Disclosure. To ensure that consumers are provided with timely and meaningful disclosures in connection with mortgages, the bill expands the types of home loans subject to early disclosures (within three days of application) under the Truth In Lending Act (TILA) including refinancings. The bill requires that disclosures be provided no later than 7 days prior to closing so borrowers can shop for another loan if not satisfied with the terms. The bill requires a new disclosure that informs borrowers of the maximum monthly payments possible under their loan, and also increases the range of statutory damages for TILA violations from the current $200 to $2000 to $400 to $4000.


Preserving the American Dream for Our Nation’s Veterans. To assist returning soldiers avoid foreclosure, this bill lengthens the time a lender must wait before starting foreclosure from three months to nine months after a soldier returns from service and also provides returning soldiers with one year relief from increases in mortgage interest rates. In addition, the Department of Defense is required to establish a counseling program to ensure veterans and active service members can access assistance if facing financial difficulties. Also included is a provision that increases the VA loan guarantee amount, so that veterans have additional homeownership opportunities. The bill contains provisions to do the following: increase benefits paid to veterans with disabilities such as blindness for the purpose of adapting their housing; provide a moving benefit to servicemen and woman who are forced to move out of rental housing because the owner of the housing was foreclosed on; provide that veterans benefits received in a lump sum are treated the same for the purposes of eligibility for housing assistance as monthly benefits; and to allow the Veterans Administration to provide for improvements and structural alterations to homes of veterans with service-connected disabilities.

Understanding Credit Scoring & Credit Repair

By Bill Vourazeris,
M-Point Mortgage Services

Crofton, MD Credit remediation is a subject consumers often face with fear and trepidation, and for good reason. With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history. The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want.

The first step in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)

It's also important to know just what a good credit score is. Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders. Don't despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate.

While credit repair is necessary for some, it's not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:

· Evenly distribute your credit card debt to change the ratio of debt to available credit. Let's say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.

· Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don't close those old accounts!

· Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you're only looking for one loan, multiple lenders may request your credit report. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.

Remember, credit scores don't change overnight. Improving them requires time and diligent effort on your part, so it's a good idea to get the ball rolling at least three to six months prior to submitting your application for home financing.

If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don’t sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission's website, which contains a wealth of helpful literature.

If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company. Before you do, be sure to familiarize yourself with the FTC's regulations on credit repair. With over 1100 credit repair companies to choose from, it's important to be certain you are dealing with a reputable firm. Examine the FTC's information on fraudulent practices to avoid falling prey to credit repair scams.

Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.

Additional Resources:

To order your free credit report, go to:
www.annualcreditreport.com

To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm

For the Federal Trade Commission's information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html

Bill Vourazeris
443-618-2880

Should You Leverage Your Home or Pay It Down Rapidly?

By Bill Vourazeris

Crofton, MD – There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.

Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example: If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity. Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.
As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.

However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.

Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.

It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.

Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.

The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.

Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

By Bill Vourazeris

Crofton, MD – Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here. Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames. If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate. It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.

Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.

Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.

Buying a Foreclosed Home

With today’s market there are a number of attractive homes in the foreclosure market. However, buying a foreclosed home is much more risky and complicated than the traditional home buying course. There are a few tips that you should know before trying to buy a foreclosed property.
First you can buy a home when it’s in the pre-foreclosure stage, or when the owner of the house has been given a certain amount of time depending on the state to become current with the mortgage or give up the home. Buying a house in this time period often is easier for experienced buyers because you have to deal directly with the homeowner. Not only are they likely upset about losing their home, often homeowners don’t know their properties were made public in a foreclosure listing. Another thing that makes buying homes during this period difficult is the time constraints. Some states give homeowners only 30 days before the bank puts it up for auction. Not a lot of time to make a deal and transfer the mortgage.
If a home does go to auction, the next stage in foreclosure, buying the home then can again be risky. The auction usually happens on the steps of a local courthouse and is difficult because you usually have to pay cash for the home. Homebuyers can’t finance auctioned homes. Additionally you have to buy the house without seeing it. And beyond all of that you can’t get title insurance so if the house has a tax lien attached to it the new owner, you, has to pay it off.
If no bids are high enough to pay for the outstanding loan or no one shows up to the auction then the next step is taken. This means the bank will take ownership of the home and use a real estate broker to sell it. This is the best way to buy foreclosed properties in terms of ease. However, you’re not likely to get a discount any longer because the bank usually tries to sell for right at or close to the market value. Try negotiating though because if a bank has a number of properties they are more willing to chance their asking price.
Another type of foreclosed properties is the homes that were bought with FHA or Department of Veterans Affairs loans. When these homes go into foreclosure they are put up for sale by the government. These listings are updated daily and come with a detailed property report, but can only be bid on by HUD-registered brokers. Better yet, for the first 45 days they are up for sale the listing is only for homeowner occupancy, which means you don’t face competition from foreclosure investors. This means the best chance for the good properties at a reasonable price.
You can find listings of foreclosures at Foreclosure.com, Foreclosures.com and RealtyTrac.com All of these sites list foreclosed properties and charge monthly subscription fees for access to their databases.

Bill Vourazeris
443-618-2880

A Downpayment On A Home Is Not A Cushion

Posted on June 26, 2006Filed under Mortgage Planning Ideas Read the complete post or link to it
Once more, the major media outlets miss the bigger picture. This time, the story comes from the Chicago Tribune via Money Magazine.
The offending quote:
[New York City financial planner James] Kibler says he likes to see buyers put down at least 10 percent, because they will have a cushion should home prices dip. If you pay $300,000, for example, and need to move after a year, you'll only have to pay off a $270,000 mortgage balance. That gives you the freedom to sell for slightly under what you paid for the house and pay a real estate commission.
I am not trying to pick a fight with a well-known planner, but this is one of the least-informed statements I have read in a long, long time. Here's the problem with Kibler's statement -- it's right out of Homebuyer Psychology 101.
To categorize a downpayment as "a cushion" against falling real estate prices is a farce. The $30,000 is not a cushion -- it's a potential loss.
Here's why.
If you sell your home for less than you paid for it, then you've lost money on your real estate investment. This happens irrespective of your initial downpayment. Making a downpayment to protect yourself against market losses is a broken concept. This is a simple game of Pay Now, or Pay Later.
There is no real protection from falling real estate prices other than to limit your investment in it. That means putting no more principal in your home that you absolutely have to because if you sell your home for a loss in a year, there are two scenarios:
You liquidated savings accounts last year to make an initial downpayment and that downpayment is used to cover your loss
You didn't make a downpayment at all, and you liquidate your savings today to cover your loss
Considering that your savings earn interest in a bank account and your equity earns nothing, Outcome #2 is a better result because Pay Later earns more interest than Pay Now.
The concept of a "cushion" is a pure psychological play, and Kibler should know better. To that end, so should Money Magazine and the Tribune.

Bill Vourazeris
443-618-2880

Bankrate.com Mortgage Trend Index (July 3, 2008)

Posted on July 3, 2008Filed under Market Direction Surveys Read the complete post or link to it
I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey is now available.
As a reminder:
The survey is for conforming loans only.
You're welcome to email me about your pending plans to purchase or refinance.
I twitter market updates a few times daily. Follow me, if you want.
Anyway, on to the group's predictions for the next 30 days:
21% of participants predict rates will increase
43% of participants predict rates will decrease
I am predicting that rates will decrease over the next 30 days, but that doesn't mean you should necessarily follow my advice when choosing whether to lock a rate, or float it. My advice may not be appropriate for your individual situation.
From the Bankrate.com survey:
"So long as growth stays steady, money should flow into the mortgage bond market. This drops rates."
I've been using Twitter to communicate the mid-day market shifts to clients. My tweets tell them when rates are likely to change so they can be more pro-active about their finances.
Twitter's simple to set up and it's non-intrusive. You're welcome to follow me if you'd like the updates, too.
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