New Mortgage Rules Aimed at Consumers

The Department of Housing and Urban Development plans to announce Wednesday morning its final version of new rules designed to help Americans shop for mortgages more effectively.
The rules update requirements of the Real Estate Settlement Procedures Act, known as Respa, a 1974 law that sets federal rules for home-purchase transactions.
Among other things, the new rules, debated for years, are supposed to help consumers compare terms on loans offered by different lenders and limit the ability of lenders to offer final terms that are far different from initial estimates given to potential borrowers.
Many Americans now in default on their mortgages say they didn't fully understand the terms of loans they were encouraged to take during the housing boom. One big problem is that legally mandated disclosures are so voluminous that almost no one ever reads them before signing.
Lobbyists said HUD appears to have dropped a provision that would have required a lengthy "script" to be read to borrowers at the closing table, setting out the terms of the loan. Lenders had complained that the script would raise costs by taking up too much time. A HUD spokesman declined to comment on any changes.
Mortgage industry groups have called for HUD to withdraw the planned rules and instead work with the Federal Reserve to create a coordinated set of disclosure rules stemming from Respa and the Truth in Lending Act. The Federal Reserve has responsibility for making rules under the latter law.
But the Bush administration, which was forced by intense industry opposition to withdraw an earlier set of Respa rules in 2004, has insisted it would complete the process this time.
The Obama administration is likely to try to go well beyond the new Respa rules and look more comprehensively at disclosures lenders are required to make to borrowers, said Howard Glaser, a mortgage industry consultant who served as a senior HUD official in the Clinton administration. "This won't be viewed as sufficient to restore borrower confidence in the mortgage process," Mr. Glaser said.
There is general agreement on a need for simpler forms of disclosure. "In today's market, people shop more effectively for a new flat screen TV than they do for a mortgage," the Mortgage Bankers Association, a trade group, told Congress in testimony earlier this year. But the association said HUD's planned rules failed to simplify the process.

House Rejects Bailout Bill, Real Estate Leaders Talk about Impact on Housing

RISMEDIA, Sept. 30, 2008-In a stunning vote, the House of Representatives on Monday rejected the Bush administration’s proposed $700 billion rescue of Wall Street by a vote of 228-205. According to published reports, 132 Republicans voted against plan, only 66 in favor and 138 Democrats voted in favor with 95 opposing the measure.

It was unclear what would follow, however supporters scrambled to bring the bill up for consideration again as quickly as possible. On Wall Street, even before the vote was complete, stocks began tumbling. The Dow plunged as low as 700 points before rebounding slightly.

The decision came after lawmakers attempted to hammer out a plan to share spending controls with the current administration. The failed plan to initiate the biggest bailout in U.S. history had tentative support from both presidential candidates.

The failed plan would have authorized the Federal government to acquire a massive package of devalued assets from beleaguered financial companies to shake loose seized credit. The proposal had been designed to end a vicious downward spiral that has battered all levels of the economy.

As a result, hundreds of billions of dollars in investments based on mortgages have soured and cramped banks’ willingness to lend.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies’ future profits. To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.

Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee seemed to empathize with homeowners and average citizens who barraged lawmakers’ offices in recent days skeptical of the plan.

“I don’t know of anyone here who wants the center of the economic universe to be Washington,” said Sen Dodd, a top negotiator on the bailout. “The center of gravity is here temporarily. … God forbid it’s here any longer than it takes to get credit moving again.”

Leading up to the decision, some top real estate industry leaders and analysts agreed that something had to be done, but didn’t necessarily buy in to the bailout plan as a quick fix for volatile corrections or declining trends in the housing market.

Lawrence Yun, NAR chief economist essentially likened the bailout to the biggest jumbo mutual fund the government established for itself, ever. In a commentary to members September 22, Yun said he inclined to view the proposal, “as the biggest sovereign wealth fund investment to date.

Yun pointed out that several sovereign wealth funds have been investing in Wall Street firms and mortgage-related debts since late last year.

“Singapore, South Korea, United Arab Emirates, Saudi Arabia, and China were among the countries putting up a few billion dollars in the hopes of turning a big profit once the housing market recovers,” Yun wrote.

He explained that the principal goal of the new Treasury authorization is not to make money but to unclog the financial pipelines so most Americans, the primary investors in the program, can begin borrowing again.

“Knowingly or not, the 75 million homeowners and 100 million taxpayers have now become the key stakeholders on the side of housing market recovery,” Yun added.

While NRT President Bruce Zipf did not downplay its historical importance, he was somewhat philosophical in referring to the current situation as part of a cycle.

“This is just on a different level and at a different scope,” Zipf said. “There’s a cleansing period going on, it’s just a question how long this cleansing period will go on for.”

He remained certain, in the end, there will still be people buying and selling homes and an industry to lend the money for them to do it.

“Everybody may look a little different, with a different name and a little bit of a different structure, but this is an evolution,” Zipf said.

He said when it comes to counseling everyone from brokers to agents to the clients about declining trends in some of its markets, NRT has been doing that for years. And it appears in several of those troubled markets, the counseling is paying off.

“In some of our markets, we have been witnessing declines for up to four years,” he said. “And the good news is, in some of those markets we’re now seeing unit sales greater than the price declines. This certainly signals a rebound in the market.”

He said particularly in lower priced markets, trends are looking up.

“Price means more than anything now,” he said, adding that home owners and potential buyers should still look to the real estate market as a good long term investment.

“Real estate will never reset to zero,” he said.

Carter Murdoch, Ph.D., compliance and marketing executive for the Realtor Builder Mortgage Services Group of Bank of America said industry-wide, mortgage rates are remaining somewhat consistent. It’s the Fed that has found itself with “no bullets in the gun.”

“The number of lenders has dropped by historic proportions, thereby making it tougher for all borrowers to find funding,” Murdoch said.

Murdoch not only shared Zipf’s observation that several declining markets are showing some renewed spark, he goes as far as predicting those markets whose home values have fallen the farthest will recover the fastest.

Although the federal bailout appeared imminent, he said the fix will take some time.

“The reality is the liquidity crunch it will take a minimum of six months, possibly more than two years to shake out,” Murdoch said.

He said as a result of the economic slide in recent days, the “velocity of money has almost come to a standstill,” and a bailout is a first step, “priming the pump” to help restore overall confidence in the financial markets.

Bob LeFever, an industry consultant as well as president and CEO of The LeFever Group, illustrated that in some powerful circles of influence, the economic shakeup is all but past. He illustrated his point recalling a conversation with a broker at a boutique real estate firm in Newport Beach, California - the heart of financially shell-shocked Orange County where the extinction of virtually all its major financial services giants has cost thousands of jobs.

He said over one recent weekend, after the bailout was proposed, that firm closed four deals - one for $20 million, one for $17 million, one for $12 million and one for $8 million.

“The agents said the reason people did it because they felt the government proposal will redefine the bottom of the real estate market,” LeFever said. “People with money, understand that the crisis is over.”

He said the final twist to the whole national financial debacle is the government bailout. But at what cost will it come?

“I liken this to a hurricane,” LeFever said. “First comes the wall of water. Then the eye of the hurricane comes over - the eye of the hurricane is the government stepping in with a $700 billion package.

“Now the aftermath is coming. This mess ain’t going to get cleaned up in 72 hours,” he added.

LeFever suggested consumers who don’t have to buy or sell might want to hold tight to see how the back end of this historic hurricane shakes out.

Rei Mesa , is President of Prudential WCI Real Estate in Florida, the company has over 40 locations and more than 2,000 real estate sales associates serving 17 counties throughout Florida. That state took one of the hardest hits from LeFever’s so-called financial hurricane.

He said it will be tough to tell the full impact of a government intervention.

“I’m disappointed it didn’t happen sooner, but it’s absolutely needed,” Mesa said. “Short term it’s going to affect our sales, but in the long term it’s going to bring some long term benefits.”

He, too, pointed out the availability of continuing historic low interest rates, and feels the affordability factor will soon follow, spurring the market among those who have the credit worthiness to qualify for loans.

Moving ahead, Mesa said it’s more critical than ever for everyone on the front lines dealing with consumers be as informed as possible about goings on in not only the world of real estate, but the arena in which the financial aspects of real estate transactions play out.

“We’re looked upon by the consumers as individuals who provide guidance,” Mesa said, “and quite frankly stay engaged. It’s not a necessity, but a requirement to stay informed.”

The good news Mesa sees coming out of the bailout is a leveling off of foreclosures in the short run, and a return to accessible financing for homes which are generally correcting to a more affordable price range, especially for first time buyers.

And the potential worst-case outcome?

“The most negative outcome would be more stringent requirements for qualifying for a mortgage, even for those with good credit,” Mesa said. “And if what we do today does not curtail impending foreclosures, obviously it will continue to erode values in real estate. This will make it that much longer and much harder to return to a balanced market.”

Breaking News about Downpayment Assistance

Chairman Frank and HUD Secretary Preston Negotiate DPA Agreement Chairman of the House Financial Services Committee, Barney Frank, has discussed publicly the fact that he has negotiated an agreement with HUD Secretary Steve Preston that will provide for the continuation of privately funded downpayment assistance. The agreement allows HUD to impose risk-based pricing on downpayment assistance transactions which provides Secretary Preston the fiscal protection he seeks for the FHA insurance fund. According to an Inman News article published today, Chairman Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD." Thanks to the advocates of downpayment assistance, there is significant momentum in this direction. Nehemiah urges all supporters to continue their campaign to save DPA by contacting their Senators and request a swift passage of pro-DPA legislation. Read the entire article:http://www.inman.com/news/2008/09/10/congress-weighs-reprieve-seller-funded-gifts More exciting developments: join Scott Syphax, President and CEO of Nehemiah Corporation of America, for a 30-minute virtual town hall meeting on Thursday, September 11, at 10:00 AM Pacific / 1:00 PM Eastern. Visit the Events page on www.DPAGroundSwell.org for more information.

President Bush Sign HR 3221 -

President Bush has signed H.R. 3221, the Housing and Economic Recovery Act of 2008. This will assist an estimated 400,000 homeowners facing foreclosure by allowing them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan. The bill also will permanently increase FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas. The bill permanently increases the conforming loan limit to $625,500. In February, the Economic Stimulus Act of 2008 was signed, temporarily raising the conforming loan limit in high-cost areas to $729,750 from $417,000 until December 31, 2008. The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an area’s median home price, up to $625,500. The new FHA loan limit will be the greater of $271,050 or 115 percent of an area’s median home price, up to $625,500. Both new loan limits will be effective at the expiration of the economic stimulus limits on December 31, 2008. Provisions of the legislation include: • A temporary increase in mortgage revenue bonds to refinance subprime mortgages. • New regulator for Government Sponsored Enterprises to restore investor confidence in GSE loans and help the market and economy stabilize. • First-time home buyer tax credit, which allows first-time home buyers to receive a tax refund worth up to 10 percent of a home’s purchase price, up to a maximum of $7,500. The refund serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years. • Temporary raise in the loan limit for the Veterans Affairs home loan guarantee program to the same level as the economic stimulus limits until the end of 2008. • Adjustment to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), allowing sellers to provide the non-foreign affidavit to a qualified closing entity and not just the buyer. • The setting of minimum requirements for mortgage originators, which mandates fingerprinting of loan originators and establishes a nationwide loan originator licensing and registration system. The requirements do not apply to those only performing real estate brokerage activities unless they are compensated by a lender, mortgage broker, or other loan originator. States will have the ability to implement more stringent laws. • The creation of a National Affordable Housing Trust Fund to help cover the cost of the FHA rescue plan for the first five years and develop affordable housing in subsequent years. • The Treasury Department’s proposal to create a federal backstop program to ensure the financial well-being of Fannie Mae and Freddie Mac. • The FHA’s inability to insure loans that utilize a seller-funded down-payment assistance program. Down-payment assistance from family, employers and other nonprofits is still allowed. • The Community Development Block Grant Programs’ $4 billion allotment for communities to purchase and refurbish foreclosed homes

Positive News for a Change in the Housing Market

U.S. home sales contracts signed in June unexpectedly rose, boosting an index of pending sales to the highest level since October, though it was well below the year-ago level, a real estate trade group said on Thursday.
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in June, was up 5.3 percent to 89.0 from a downwardly revised 84.5 in May.
It was the highest reading for the index since October, when it was at 89.8.
Some analysts said the main reason for the June improvement might be that banks were aggressively marking down prices on foreclosed properties to get them off their books. But even that is a sign that housing markets are being brought into order.
"There are some bottom feeders coming in to buy some of these homes in distressed situations," said Andrew Richman, managing director for SunTrust's personal asset management division in West Palm Beach, Fla.
The pickup in June signings sharply contrasted with forecasts by economists polled by Reuters who had expected contract signings to decline 1 percent.
Video: CNBC's Diana Olick breaks down the housing numbers.
The association's senior economist, Lawrence Yun, said the swing in monthly signings "indicates a housing market in transition," but said it nonetheless was encouraging.

Georgia Dreaming and Nehemiah Scheming

So let’s assume that FHA will pull the plug on seller-assisted down payment assistance (Nehemiah and AmeriDream) at the end of September… There is some chance that a new Bill (H.R. 6694) being studied by the House of Representatives will revive the program, but I would be surprised if they can overturn the recently passed (H.R. 3221) legislation before they have time to see the debacle that 3221 will produce. (I’m afraid it will take until this time next year for FHA to come to its senses and reduce the down payment requirement.)

What will be left for prospective buyers that don’t have 3.5% to put down towards purchasing a home when the FHA changes come about October 1st? Georgia Dream, offered by the Department of Community Affairs (DCA), is the next best bet for those that qualify. It is typically an FHA loan with a $500 minimum cash investment on the part of the borrower. The down payment comes in the form of an interest-free second mortgage for $5,000 or $7,500, depending on the applicant’s job type, with income restrictions. The second mortgage would have to be paid back down the road when the property is sold. There are even higher second mortgage amounts available for service men or women ($10,000) and applicants with special circumstances, such as disabilities.

The income limitations for the interest free second mortgage are based on the size of the family that will live in the house. In metro-Atlanta, here is what the income limitations look like: 1 person family: cannot make more than $39,850, 2 person family: 45,550, 3: 51,250, 4: 59,950, 5: 61,500, 6: 66,050, 7: 70,650, 8 or more: 75,200. Counties outside of metro-Atlanta range from a low of $30,400 maximum income for 1 person households to a high of about $57,350.

The Georgia Dream loan (or DCA) can either be a conventional or an FHA loan… The maximum sales price is $250,000. For the FHA version, the seller can pay closing costs and prepaids up to 6% of the sales price. The conventional version limits what the seller can pay to 3%. So FHA will be the preferred method, primarily for that reason.

DCA loan applicants must complete a HUD-approved counseling course to qualify and must be a first-time homebuyer or cannot have owned a home in the past three years unless the home they want to purchase is in a targeted area, as determined by DCA. The applicant cannot have more than $20,000 in liquid assets after closing (or 20% of the sales price). For more information on this program, call your friendly loan officer.

H.R. 6694: If you are a proponent of seller-assisted down payment assistance and would like to express your support for the bill that could save it, please visit the following website: http://www.getdownpayment.com/pdfs/hr6694.pdf to view a copy of the proposed Bill. The Nehemiah organization urges you to contact your U.S. Senators and House of Representatives and make your feelings known. Comments (pro or con) can be submitted by visiting the following website: http://www.capwiz.com/nehemia/issues/alert/alertid=11709431.

Without the repeal or modification of H.R. 3221, DPA will end on October 1st. Like the website says, “legislation that bans down payment assistance on October 1, 2008 will have a negative impact on our already struggling housing market and devastate local economies.”

How many times do we have to say it?