California Down Payment Assistance

This is a summary provided by the National Association of Realtors® yesterday ( 7/28/08 ) - under each section I will translate into English because much of this sounds like it was written by lawyers.

The NAR summary will be identified with a bullet point, my commentary identified as NOTE:

Following is a summary of the key provisions of HR 3221 - The Housing Stimulus Bill of 2008 as reported by the National Association of Realtors® on 7/28/08:

• H.R. 3221, the “Housing and Economic Recovery Act of 2008″, passed the House on July 23rd by a vote of 272-152. On Saturday, July26th, the Senate passed the bill by a vote of 72-13. the President is expected to sign the bill on Tuesday, July 29th. It includes:

NOTE: As of 7/29/08 this bill has not been signed by President Bush. Although there are many things that sound “good” in this 700 page bill, there are many in Washington that are not happy with all the “other stuff” that’s been squeezed in there. President Bush has indicated that he will sign the bill, no word about it being delayed.

GSE Reform - including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. the effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008 )

NOTE: Fannie Mae and Freddie Mac are Government Sponsored Entities (GSEs), they are not government run (yet) like FHA.  Their primary purpose is to purchase mortgage backed securities.  They are currently regulated by the Office of Housing and Enterprise Oversight Committee.  I’m not sure yet what an “independent regulator” would consist of.  Note to self, get more information on that.  Making the conforming loan limit increases permanent is a very interesting prospect.

It seems that with housing prices dropping the way they are that would not be necessary. This does enable Fannie and Freddie to purchase mortgage backed securities that used to be considered “Jumbo”.  This is good news because there is absolutely no secondary market for Jumbo loans now and those banks still offering these loans have rates starting in the high 7% range.

FHA Reform - Including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits ( December 31, 2008 )

NOTE: Permanently increasing the FHA loan limits is a very good move.  The loan limits have been antiquated for quite some time.  This will allow many more people to qualify for FHA financing in states like California.  Not sure what the streamlined processing for condos, reform to the HECM, and reforms to the manufactured housing program will entail.  I will report on that when we find out more.

Program reforms go into effect immediately - loan limits after temporary increase expires at the end of the year.

Home Tax Credit - a $7,500 tax credit that would be available for any qualified purchase between April 8, 2008 and June 30, 2009. the credit is repayable over 15 years (making it, in effect, an interest free loan).

NOTE: This is phenomenal.  I have heard a couple of versions of this so i’m not going to get too excited but this is a powerful program and a great incentive to buy in the next year.  I have heard that it will be broken up over 3 years but there is no mention of that in this summary from NAR.  The $7,500 is not free money, however it is interest free.  It will be paid back over 15 years, i imagine it will just be added to your taxes due on your returns - if i did the math right, that’s about $500 a year….not bad.  Stay tuned for this one - any way you slice it this is a great feature of this bill.

FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

NOTE: Ok, this is a clarification on earlier reports.  The caveat of this program is that lenders are not required to participate in this write down, they must volunteer to forgive loan balances down to current market value, 85% of current market value no less.  I just don’t anticipate this going over well with most lenders and I believe they will be slow to adapt - you can read more about my opinion of this here.

Although it’s not mentioned here, I have also read and reported that the lenders will have to pay a 3% fee to FHA and there will be an upfront mortgage insurance premium to the owner of 1.5% of the loan amount and a monthly mortgage insurance premium of .50.  If this is consistant with FHA loan now, that upfront PMI can be financed into the loan.

Wait a minute now, hold the presses!  FHA is entitled to 50% of future appreciation?  This is the bottom of the market right here folks.  If your home is being re-valued at current market value then you have nowhere to go but up right?  I know reporters are not supposed to interject their personal feelings into a story…so it’s a good think i’m not a reporter…this is something I am going to keep an eye on.  Another question that comes to mind is will the county tax assesors adjust your property tax base to this new value?  It’s time to start asking more questions I think.

Finally, the loan limit of $550,440 nationwide is a good move.  This is going to help a lot of people.

Seller funded downpayment assistance programs - codifies existing FHA propposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.

NOTE: This is unfortunate.  HUD has had it in for Nehemiah, AmeriDream, HART and the sort since last year.  My guess is that these charities will find a way to survive through private funding.  Possibly putting home sellers on a “do solicit” list and hound them until they give?  I don’t know…it’s a guess.

These organizations have helped many families achieve home ownership that otherwise would not have been able to.  This bill simply states that FHA will not allow down payement assistance from someone that is set up to financially benefit from the transaction and the gift.  Fair enough.  These organizations I imagine will continue to operate somewhat in the style of city and state down payment assistance programs and try to acquire funding through government grants and donations.  I’m confident that they will exist in some fashion or other, maybe just not the way they do now.

VA loan limits - temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

NOTE: I don’t quite understand the temporary part of this.  I suspect that it’s a set up for an extension at the end of the year, possibly a grand finale by the Bush administration to help Veterans.  It’s a very good move as far as i’m concerned, even if it is temporary for now.  We don’t do enough for our country’s Veterans as it is.

Risk-based pricing - puts a moratorium on FHA using risk-based pricing for one year. This provision will be effective from October 1, 2008 through September 30, 2009.

NOTE: As part of the expansion of FHASecure, HUD implemented risk based pricing into thier mortage insurance model.  It basically raised mortgage insurance premiums on homebuyers that were on the lowest end of the credit tolerances when being approved for FHA loans.  I see their point, i just don’t know if it’s good for tax payers.  It looks like it’s just a temporary measure to stimulate the housing markets again by the end of 2009.  That, i’m ok with.

GSE Stabilization - includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

NOTE: This is a very positive move by the Treasury Department and will go a long way toward shoring up consumer confidence and stimulating the secondary market.

Mortgage Revenue Bond Authority - authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

NOTE: I do not have enough information to comment on this.

CDBG Funding - Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes

NOTE: Community Development Block Grants.  There are already reports of cities buying up foreclosure homes fixing them up and reselling them.  This is an important move by responsible municipalities to revitalize hard hit communities and help home values recover quicker.  I imagine these monies will be distributed proportionately to those areas of the country that have been hit hardest by foreclosures.

LIHTC - Modernizes the Low Income Housing Tax Credit program to make it more efficient.

NOTE: I do not have enough information to comment on this.

Loan Originator Requirements - Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. the purpose is the prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

NOTE: This is a move that many in the mortgage industry have been in support of.  There is too much inconsistency from State to State in regards to licensing requirements and regulation.  I do not know enough about these new requirements to comment further.  I will do more research and report back.

As we wait for President Bush to sign this bill I’m sure more and more details will come out.  I encourage you to comment and engage in debate about this bill so that we can disseminate details as we get them.

For questions, comments or conversation about H.R. 3221you may call me on my cell phone at 714-336-8286

H.R. 3221, the Housing and Economic Recovery Act of 2008 is a 700 page bill. We will continue to report the details of this bill as we learn more about them.

SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.

Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:

(9) CASH INVESTMENT REQUIREMENT-

(A) IN GENERAL - mortgage insured under this section shall be executed by a mortgagor who shall have
paid, in cash or its equivalent, on account of the property an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.

Stay tuned in as more comes out on the contents of this bill…..

H.R. 3221 Housing and Economic Recovery Act of 2008, aka Foreclosure Prevention Act, is scheduled to be signed by President Bush on Monday, July 28th and is projected to save over 400,000 American homeowners from foreclosure.

Nestled deep in this 700 page bill, located on 479-481 you will find the end date of October 1st, 2008 for the use of down payment charity gifts from currently allowed charities Nehemiah, Ameridream, HART and a small handful of other allowed charities.

Excerpt from Nehemiah Web Site:

SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.

Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:

(i) such lien shall be subordinate to the mortgage; and

(ii) the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal, inspection, and other fees in connection with the mortgage

(i) The seller or any other person or entity that financially benefits from the transaction.

described in clause (i). This subparagraph shall apply only to mortgages for which the mortgagee has
issued credit approval for the borrower on or after October 1, 2008.’’

• (ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties
  (9) CASH INVESTMENT REQUIREMENT-(A) IN GENERAL - mortgage insured under this section shall be executed by a mortgagor who shall have
  paid, in cash or its equivalent, on account of the property an amount equal to not less than 3.5 percent of
  the appraised value of the property or such larger amount as the Secretary may determine.

  (B) FAMILY MEMBERS - For purposes of this paragraph, the Secretary shall consider as cash or its equivalent
  any amounts borrowed from a family member (as such term is defined in section 201), subject only to the
  requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against
  the property, that –

  (C) PROHIBITED SOURCES.—In no case shall the funds required by subparagraph (A) consist, in whole or in
  part, of funds provided by any of the following parties before, during, or after closing of the property sale:

A valid argument is that there are other factors that many feel FHA is not revealing and that is the starting credit quality of those loans that experienced a higher rate of default. If FHA would simply follow suit with the rest of the credit markets and raise the bar slightly on thier qualifying guidelines we may not be a need to eliminate these programs…but this does not seem to even be a consideration for FHA.

In the upcoming years housing prices in America will reach an even higher level of affordability that will result many first time home buyers to enter the market. The key to recovery of the U.S. Housing market is two fold - foreclosures must slow to normal rates and people need to buy homes.

Seller paid down payment assistance has always been a valuable resource for new home buyers and with the tightening of the credit markets we may see this housing crisis unnecesarily prolonged by cutting off a key factor in this recovery - Helping new home buyers buy homes.

July 23rd 2008 - JUST RELEASED!

This information can be found on the CalHFA Website Here

This conventional first mortgage loan program features a below market, 30-year, fixed interest rate, fully amortized loan reserved for REO properties of participating financial institutions. It has a maximum LTV limit of 100% and may be used with CalHFA’s CHDAP and Fannie Mae eligible Community Seconds® programs (which are designated on CalHFA’s AHPP list as “CalHFA MBS Program Eligible”) for a total CLTV of 103%.

IMPORTANT DISCLOSURE INFORMATION:

CalHFA does not lend money directly to consumers. We use approved private lenders to qualify consumers and make all mortgage loans. Rates can vary depending on loan program and income level.

The information provided in this program description is for guidance only. While we have taken care to provide accurate information, we cannot cover every circumstance or program nuance. This program description is subject to change from time to time without prior notice. CalHFA does not discriminate on any prohibited basis in employment or in the admission and access to its programs or activities.

07/08

Counties Eligible: Alameda, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Los Angeles, Madera, Marin, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange, Placer, Plumas, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Clara, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Tuolumne, Ventura, Yolo, Yuba

Cities Eligible: Adelanto, Agoura Hills, Alameda, Albany, Alhambra, Aliso Viejo, Alturas, Amador City, American Canyon, Anaheim, Anderson, Angels Camp, Antioch, Apple Valley , Arcadia, Arcata, Arroyo Grande, Artesia, Arvin, Atascadero, Atherton , Atwater, Auburn, Avalon, Avenal, Azusa, Bakersfield, Baldwin Park, Banning, Barstow, Beaumont, Bell Gardens, Bell, Bellflower, Belmont, Belvedere, Benicia, Berkeley, Beverly Hills, Big Bear Lake, Biggs, Bishop, Blue Lake, Blythe, Bradbury, Brawley, Brea, Brentwood, Brisbane, Buellton, Buena Park, Burbank, Burlingame, Calabasas, Calexico, California City, Calimesa, Calipatria, Calistoga, Camarillo, Campbell, Canyon Lake, Capitola, Carlsbad, Carmel-by-the-Sea, Carpinteria, Carson, Cathedral City, Ceres, Cerritos, Chico, Chino Hills, Chino, Chowchilla, Chula Vista, Citrus Heights, City of Commerce, City of Industry, Claremont, Clayton, Clearlake, Cloverdale, Clovis, Coachella, Coalinga, Colfax, Colma , Colton, Colusa, Compton, Concord, Corcoran, Corning, Corona, Coronado, Corte Madera , Costa Mesa, Cotati, Covina, Crescent City, Cudahy, Culver City, Cupertino, Cypress, Daly City, Dana Point, Danville , Davis, Del Mar, Del Rey Oaks, Delano, Desert Hot Springs, Diamond Bar, Dinuba, Dixon, Dorris, Dos Palos, Downey, Duarte, Dublin, Dunsmuir, East Palo Alto, El Cajon, El Centro, El Cerrito, El Monte, El Segundo, Elk Grove, Emeryville, Encinitas, Escalon, Escondido, Etna, Eureka, Exeter, Fairfax , Fairfield, Farmersville, Ferndale, Fillmore, Firebaugh, Folsom, Fontana, Fort Bragg, Fort Jones, Fortuna, Foster City, Fountain Valley, Fowler, Fremont, Fresno, Fullerton, Galt, Garden Grove, Gardena, Gilroy, Glendale, Glendora, Goleta, Gonzales, Grand Terrace, Grass Valley, Greenfield, Gridley, Grover Beach, Guadalupe, Gustine, Half Moon Bay, Hanford, Hawaiian Gardens, Hawthorne, Hayward, Healdsburg, Hemet, Hercules, Hermosa Beach, Hesperia, Hidden Hills, Highland, Hillsborough , Hollister, Holtville, Hughson, Huntington Beach, Huntington Park, Huron, Imperial Beach, Imperial, Indian Wells, Indio, Inglewood, Ione, Irvine, Irwindale, Isleton, Jackson, Kerman, King City, Kingsburg, La Cañada Flintridge, La Habra Heights, La Habra, La Mesa, La Mirada, La Palma, La Puente, La Quinta, La Verne, Lafayette, Laguna Beach, Laguna Hills, Laguna Niguel, Laguna Woods, Lake Elsinore, Lake Forest, Lakeport, Lakewood, Lancaster, Larkspur, Lathrop, Lawndale, Lemon Grove, Lemoore, Lincoln, Lindsay, Live Oak, Livermore, Livingston, Lodi, Loma Linda, Lomita, Lompoc, Long Beach, Loomis , Los Alamitos, Los Altos Hills , Los Altos, Los Angeles, Los Banos, Los Gatos , Loyalton, Lynwood, Madera, Malibu, Mammoth Lakes , Manhattan Beach, Manteca, Maricopa, Marina, Martinez, Marysville, Maywood, McFarland, Mendota, Menifee, Menlo Park, Merced, Mill Valley, Millbrae, Milpitas, Mission Viejo, Modesto, Monrovia, Montague, Montclair, Monte Sereno, Montebello, Monterey Park, Monterey, Moorpark, Moraga , Moreno Valley, Morgan Hill, Morro Bay, Mount Shasta, Mountain View, Murrieta, Napa, National City, Needles, Nevada City, Newark, Newman, Newport Beach, Norco, Norwalk, Novato, Oakdale, Oakland, Oakley, Oceanside, Ojai, Ontario, Orange Cove, Orange, Orinda, Orland, Oroville, Oxnard, Pacific Grove, Pacifica, Palm Desert, Palm Springs, Palmdale, Palo Alto, Palos Verdes Estates, Paradise , Paramount, Parlier, Pasadena, Paso Robles, Patterson, Perris, Petaluma, Pico Rivera, Piedmont, Pinole, Pismo Beach, Pittsburg, Placentia, Placerville, Pleasant Hill, Pleasanton, Plymouth, Point Arena, Pomona, Port Hueneme, Porterville, Portola Valley , Portola, Poway, Rancho Cordova, Rancho Cucamonga, Rancho Mirage, Rancho Palos Verdes, Rancho Santa Margarita, Red Bluff, Redding, Redlands, Redondo Beach, Redwood City, Reedley, Rialto, Richmond, Ridgecrest, Rio Dell, Rio Vista, Ripon, Riverbank, Riverside, Rocklin, Rohnert Park, Rolling Hills Estates, Rolling Hills, Rosemead, Roseville, Ross , Sacramento, Salinas, San Anselmo , San Bernardino, San Bruno, San Carlos, San Clemente, San Diego, San Dimas, San Fernando, San Francisco, San Gabriel, San Jacinto, San Joaquin, San Jose, San Juan Bautista, San Juan Capistrano, San Leandro, San Luis Obispo, San Marcos, San Marino, San Mateo, San Pablo, San Rafael, San Ramon, Sand City, Sanger, Santa Ana, Santa Barbara, Santa Clara, Santa Clarita, Santa Cruz, Santa Fe Springs, Santa Maria, Santa Monica, Santa Paula, Santa Rosa, Santee, Saratoga, Sausalito, Scotts Valley, Seal Beach, Seaside, Sebastopol, Selma, Shafter, Shasta Lake, Sierra Madre, Signal Hill, Simi Valley, Solana Beach, Soledad, Solvang, Sonoma, Sonora, South El Monte, South Gate, South Lake Tahoe, South Pasadena, South San Francisco, St. Helena, Stanton, Stockton, Suisun City, Sunnyvale, Susanville, Sutter Creek, Taft, Tehachapi, Tehama, Temecula, Temple City, Thousand Oaks, Tiburon , Torrance, Tracy, Trinidad, Truckee , Tulare, Tulelake, Turlock, Tustin, Twentynine Palms, Ukiah, Union City, Upland, Vacaville, Vallejo, Ventura, Vernon, Victorville, Villa Park, Visalia, Vista, Walnut Creek, Walnut, Wasco, Waterford, Watsonville, Weed, West Covina, West Hollywood, West Sacramento, Westlake Village, Westminster, Westmorland, Wheatland, Whittier, Williams, Willits, Willows, Windsor , Winters, Woodlake, Woodland, Woodside , Yorba Linda, Yountville , Yreka, Yuba City, Yucaipa, Yucca Valley