Interpretation and Reality of the Housing and Recovery Act of 2008 - Arizona (Maricopa County)

Interpretation and Reality of the Housing and Economic Recovery Act of 2008 - Arizona (Maricopa County)

Recently the House and Senate passed broad-based housing legislation that was signed into law by President Bush last week. As expected, Fannie/Freddie/and HUD has not yet communicated a majority of the program requirements to the mortgage lenders and investors.

With that disclosure, here are several key changes and how it affects you:

1. Effective January 1, 2009, conforming and FHA loan limits are scheduled to increase. (Not for us) These changes replace the temporary changes imposed by the Economic Stimulus Act, and are to raise the limits permanently. At this time there is no relief for my business channels.


a. For FHA insured mtgs, the new limit will be 115% of the median home price in that area, up to $625,000. That provision will affect loan limits in high cost areas. In lower cost areas, the FHA limits are slated not to decrease.


b. For conforming, the limit will remain at least $417,000 for single family home. Starting next year, the new limit is either $417,000 or 115 percent of the areas median home price, whichever is higher – up to $625,000. After that, the limits can go up or down according to a price index. This could be an issue if not reversed.


2. Elimination of DPA (Down Payment Assistance Programs.) This one is clear as mud as to the mechanics, but the end result is they are being eliminated – and fast! When the law was signed, it stated a 10/1 program elimination, but provided no clarification of what this date actually was. The last round that the DPA was close to extinction, the “cutoff” date was the property contract date. This round, it is being interpreted that the 10/1/2008 date is a HUD delivery date for DPA funded files, and the investment community have already responded. Today alone, I have received notice from JP Morgan/Chase, Citi, Suntrust, and Franklin American that they will no longer accept new locks for DPA funded transactions. Countrywide indicated that their policy will be released verrrrry soon. These investors will honor all those in the pipe subject to extension and final delivery date limitations that will be covered under separate cover. First Horizon also announced today that Friday is the last day for their program. Given Chase is the major investor for many of the wholesale aggregators, expect most of the wholesale community to follow suit in the next few days. There is current legislation enacted to reinstate a “revised” version of the DPA programs with FICO and other restrictions, but it is a long ways away from being a reality. As of now, you have a very narrow window to secure a property and lock with the investor.

Until further notice, I can continue to accept locks on DPA files for investors that have not yet changed their guides. At this point, a max lock term of 20 days will be offered with no promise of the ability to extend. Extension expectations are weak .

Please understand that based on market conditions, this window may also be eliminated at any time in the near future. As stated above, Chase, Franklin American, and Suntrust are not available to lock future files.

3. $7,500 income tax credit. While this is being sold a credit, it is actually a 15 year no interest loan. The $7,500 is a direct credit in the year taken, but then repaid in equal installments through year 15 as an increase in taxes (not taxable income). This program is slated for homes purchased through July of 2009.


4. Property tax deductions for all homeowners. Under current law, you can deduct your property taxes from federal income tax if you itemize on schedule A. The law increases the standard deduction by $500 for single, and $1,000 for married. This will benefit the elderly and more affluent that may not have a mortgage on the property that forces/allows them to itemize.


5. Tax preference to encourage issuance of Municipal Bonds. We have had numerous discussions with the servicers, and issuers of the current bond programs that we offer. Their take is that while there appears to be some positive impact, it will be approximately 6 months before the tax code is actually written and the underwriters can attempt to float a new issue. There continues to be small offerings that are being released as the target funding requirements expire, but they evaporate in minuets. In addition, may of the program end dates for funding are not realistic.


In addition to the Housing and recovery act, Fannie and Freddie have also issued numerous changes that are being retracted as fast as they are issued.

1. It has been announced that they will be issuing an additional 25 bps adverse delivery fee. Several investors had factored that into their pricing, and have rescinded as of today. Your OB pricing engine will eliminate those who have not yet reversed.
2. In addition, there have been numerous new schedules of LLPA’s being issued by each investor. These have also been eliminated for the short term. It has been relayed to us that they are still coming soon, but the agencies are not trying to release the changes with the same release dates to prevent adverse selection. Lock em in if you can.

We will continue to forward new information as it is released, but as stated before, there are many unanswered questions. Please contact me with concerns/questions and market intelligence of others decisions.

Happy selling

aj

A.J.Johnson
Suburban Mortgage, Inc.
Sr. Loan Officer/Mortgage Planner
(602) 606-6702 Corporate Office direct
(623) 445-9769 Carefree Highway Office direct
(602) 206-2682 Cell
(602) 735-6702 efax

ajohnson@submort.com

www.mortgagesbyaj.com Pers. Mortgage website
www.submort.com/ajjohnson Corp Mortgage website
Lic # BK10123 , BKBR# 0114037
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