HOUSING RESCUE BILL EFFECTIVE OCTOBER 1, 2008

 WHO IS ELIGIBLE FOR THE NEW RESCUE BILL PROGRAM?

The US Senate passed a $300 billion housing Rescue Bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac. President Bush signed the bill into law with a start date of October 1, 2008. The Congressional Budget Office estimates that 400,000 borrowers may benefit from the program. In addition to the foreclosure rescue provision this new program also provides an incentive for first time buyers with a credit of up to $7,500.00 towards a down payment on a home purchase. This is NOT a FREE sum of money it is a short term LOAN made to first time buyers only and within 15 years of the purchase date. It is an interest free loan.

There are over 2.9 Million homeowners currently in foreclosure with an additional 1.2 Million facing foreclosure within the next 16 months. This law will help less than 10% of the homeowners who are in or facing foreclosure nationwide.

In addition to the foreclosure rescue provision this new program also provides an incentive for first time buyers with a credit of up to $7,500.00 towards a down payment on a home purchase. This is NOT a FREE sum of money it is a short term LOAN made to first time buyers only and must be repaid within 15 years of the purchase date. It is an interest free loan.

• Qualified Borrowers must live in their homes -You MUST have Homestead Exemption to qualify
• Only loans issued between January 2005 and June 2007 are eligible-any loans taken out before January 2005 or after June 2007 ARE INELIGIBLE for this rescue program
• Homeowner must be spending at least 31% of their gross monthly income on mortgage payments to be eligible for this rescue program-any amount under 31% and the homeowner is INELIGIBLE for this rescue program
• Homeowners must prove they will not be able to pay their existing mortgage and attest that they are not deliberately defaulting just to obtain a lower payment-homeowners must prove a hardship to be eligible for this rescue program
• Homeowners must first retire any other debt on the home such as a second mortgage / home equity loan or line of credit-homeowners must close and PAY OFF any second mortgage or equity line of credit to be eligible for this rescue program
• Homeowners  will need APPROVAL from the FHA and their LENDER to be eligible for this rescue program-this is a VOLUNTARY program for the lenders, each lender can opt out of the program on a case by case basis, meaning the lender can say NO and not allow the homeowner to take advantage of this rescue program
• The total debt cannot exceed 95%  of the homes appraised value (LTV) to be eligible for this rescue program-if the homeowner owes more than their home is worth it is called being "upside down".  If the homeowner is "upside down" or owes more than 95% of the homes appraised value, they will not be eligible for this rescue program

WHAT’S THE “CATCH” ON THIS NEW RESCUE PROGRAM?

• Borrowers who are eligible for this program are not allowed to take out another home equity loan or line of credit / second mortgage for at least 5 years - ( Borrowers are locked into the new first mortgage and are not allowed to use any equity that may build up in their home for at least 5 years from the date of the new loan through the rescue program)
• Lenders holding the original mortgage have to agree to rework a given loan before things can get started with this program – (For a lender to agree and participate in this program the FHA is requiring the lender to make major concessions by writing down the value of the loan and take substantial losses)                                      
• The lender will weigh on a case by case basis the difference in the loss between participating in the rescue program and allowing the home to complete the foreclosure process- (The lender will decide which loss is less and act accordingly. They will review each case individually)
• The lender will review the homeowner’s complete financial picture including; credit scores, bank statements, tax returns, job history and other items to determine credit worthiness for this rescue program –  (The lender is in essence putting the homeowner through a complete new mortgage loan application and process and if the credit is not good or the job history / income is not good the homeowner will be turned down for the rescue program)
  

WHAT WILL THE PROGRAM COST THE HOMEOWNER?

Loan origination fees will vary by lender, they are usually paid by the borrower over the life of the loan - ( Loan origination fees will be paid by the borrower over the life of the loan by INCREASING the interest rate the borrower will pay)

• Borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan. The rate is 1.5% of the principal annually –  (The borrower must pay 1.5% of the value of their home every year to the FHA to ensure they do not default on the loan. Example; a $150,000 loan x 1.5% = $2,250.00 borrower pays to the FHA EVERY YEAR for insurance. This is NOT homeowner’s insurance; the borrower must still provide insurance on their home. This is “loan” insurance)
• Borrowers also agree to pay a 3% “exit fee” of the mortgage principal to the FHA when they sell or refinance the loan –  (This is a penalty for terminating the loan by either selling the property or refinancing the loan. Example; a $150,000 loan x 3% = $4,500.00 penalty the borrower must pay the FHA when they sell the home or refinance the loan)
• Borrowers agree to SHARE THE PROFITS with the FHA on a sliding scale for the first 5 years – (The borrower must pay the FHA 100% of any profits realized from higher home prices if they sell or refinance within a year. Example; $150,000 loan under rescue program, home sells within a year for $200,000 the borrower MUST PAY THE FHA $50,000 which is 100% of the increased value. There is NO cap, the FHA receives 100% of the equity in the first year)
• After a year, the borrower will share 90% of the profits with the FHA. The percentage drops in 10% increments to 50% after the fifth year where it STAYS –  (The borrower MUST PAY THE FHA 90% of the profits in the second year, 80% of the profits in the third year, 70% of the profits in the fourth year , 60% of the profits in the fifth year. After the fifth year the borrower MUST PAY THE FHA 50% of the profits. The amount never reduces from the fifth year. The borrower will pay the FHA 50% of the profits no matter how long they keep the home or how high the value rises. Example; 150,000 original rescue loan 8 years later the home is worth $300,000, the borrower must pay the FHA $75,000 PLUS that 3% “exit fee” which in this example is another $9,000 for a total of $84,000 Also don’t forget for the last 8 years the borrower has been paying the 1.5% loan insurance fee, in this example would be $2,250 x 8 = $18,000 + $84,000 for a grand total paid to the FHA of $102,000. And this is just on a $150,000 home the amount due  to the FHA would be incredible on homes of higher value)

WHAT ARE THE UNKNOWNS?

What happens when the previously defaulted borrower defaults again?  Congressed has not addressed this issue. 

What happens when the borrower cannot make the 1.5% loan insurance payment each year? Congressed has not addressed this issue. 

What happens if the borrower becomes delinquent on their taxes or insurance?  Congressed has not addressed  this issue. 

What happens when the program provisions expire in 18 months?  Congressed has not addressed this issue. 

Who pays the bill for the $300 Billion rescue plan? The Taxpayers?  Congressed has not addressed this issue. 

Will the FHA become the world’s biggest wholesaler of real estate in the next 5 years?  Congressed has not addressed this issue.    

According to the Congressional Budget Office, there’s a greater than average chance that Freddie Mac and Fannie Mae’s losses under this rescue program could cost the US tax payers $100 BILLION over the proposed $300 billion budget

In addition to these “unknown’s” the Rescue Program provides $4 billion of the $300 billion for government agencies to purchase and rehab foreclosed homes , buying the homes at a discount and reselling them to low and moderate income families.

The idea is to boost the sluggish economy by creating construction jobs and providing low cost housing to families hit hardest by the economic down turn.