Summary of Key Provisions of The Housing Stimulus Bill (H.R. 3221)
President George W. Bush signed into law on July 30, 2008, H.R. 3221, the “Housing and Economic Recovery Act of 2008.” The legislation was passed by the U.S. House on July 23 by a vote of 272-152. On July 26, the U.S. Senate passed the bill by a vote of 72-13.
The banking industry’s two national trade associations issued the following statements regarding the legislation.
“Providing support for housing and the mortgage market and relief to millions of American families who potentially face foreclosure is at the heart of what this measure seeks to achieve,” said Cynthia L. Blankenship, ICBA chairman and vice chairman and COO, Bank of the West, Grapevine, TX. “ICBA is pleased with the President’s quick action in signing the housing bill into law. Now the regulatory agencies can quickly implement the reforms in the bill to help stabilize the housing and mortgage markets...”
Robert R. Davis, ABA executive vice president for mortgage finance & public policy, said after the House passed the legislation, “ABA supports the omnibus housing legislation passed by the House today that combines regulatory reform of the government-sponsored enterprises (GSEs), modernization of the Federal Housing Administration, and a program to use the FHA to assist troubled borrowers....Unfortunately, the legislation also contains the payment card reporting provision that would require banks to report aggregate payments made to their business customers. ABA opposes this burdensome mandate as it would impose hundreds of millions of dollars of cost on the business community.”
The following is a summary of several key provisions that will benefit homeowners, troubled housing sector, community banks, and the broader economy.
Summary of the “Federal Housing Finance Regulatory Reform Act of 2008”
The legislation strengthens and modernizes the regulation of the government-sponsored enterprises - Fannie Mae and Freddie Mac (the enterprises) and the Federal Home Loan Banks (FHLBs). It also creates a new program at the 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.
• The Act establishes a new, independent regulator, the Federal Housing Finance Agency, for the enterprises and FHLBs. This regulator will be empowered with broad new authority, equivalent to the authority of other federal financial regulators.
• The Act also raises the loan limits in high cost areas to 150% of the conforming loan limit. Currently, this would be $625,500. The higher loan limits will not go into effect until after December 31, 2008.
• The Act expands the FHLBs’ support for communities by increasing the number of community banks eligible for advances used to fund small business and agricultural loans.
• The Act authorizes FHLBs to guarantee community bank letters of credit issued to enhance the credit rating of local government bonds to help lower local governments’ cost of infrastructure construction.
• The Act provides GSE stabilization: includes language proposed by the Treasury Department to authorize Treasury to make loans to and to buy stocks from the enterprises to make sure that Fannie Mae and Freddie Mac do not fail. (This is a temporary, standby authority.)
• Finally, the legislation creates a new Housing Trust Fund and a Capital Magnet Fund, financed by contributions from the enterprises, which will be used for the construction of affordable rental housing.
Summary of the “Hope for Homeowners Act of 2008”
The bill creates a new, temporary, voluntary program (for lenders, servicers, or investors) with the 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. Investors/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. Borrowers will share their new equity and future appreciation equally with the FHA. Borrowers will pay for the FHA insurance.
Borrowers will not be able to qualify if they have intentionally defaulted on their loans or they had a debt-to-income ratio of less than 31% as of March 1, 2008.
This new program will be overseen by a board comprised 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.
The program will begin October 1, 2008, and sunset on September 30, 2011.
Other key provisions of the bill include:
• An ICBA-backed first-time homebuyer federal income tax credit of $7,500 that would be available for any qualified purchase between April 9, 2008, and June 30, 2009. The credit is repayable over 15 years (in effect, an interest free loan).
• Codification of an existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale.
• Granting an additional standard deduction for real property taxes for homeowners who claim the standard deduction.
• Strengthening the existing state-run nationwide mortgage originator licensing and registration system. Federal bank regulators will establish a parallel registration system for FDIC-insured banks.
• Providing about $4 billion in neighborhood revitalization funds for communities to repurchase foreclosed homes.
• Providing $180 million for pre-foreclosure financial counseling and legal services for homeowners strapped for cash.
The White House said that while it had some objections to the legislation, most provisions “are too important to the stability of our housing market, financial system, and the broader economy not to be enacted immediately.” Stay tuned!
