7/14/08

Washington D.C. has intensified its focus and efforts on stabilizing the nation’s troubled housing markets. Over the past 72 hours the Senate passed a Housing Stimulus Package, Treasury Secretary Paulson announced proposed government assistance plan to ensure Fannie Mae and Freddie Mac are well capitalized, and the Federal Reserve issued their Final Rule amending Regulation Z.

On Friday, July 11, the Senate voted 63 – 5 to pass their proposed Housing Stimulus Package. The Senate bill would set FHA loan limits at 110% of an area’s median home price and the GSE loan limit at 100% of an area’s median home price (for the GSE this would only apply for areas whose median home price is above the $417,000 national conforming loan limit). Both FHA and GSE loans would be capped at $625,500. Also included in the bill are provisions to reform both the GSE and FHA, create an FHA Rescue proposal for homeowners in trouble, create a first-time home buyers tax credit, allow home sellers to supply FIRPTA documentation to escrow as opposed to the buyer, create minimum mortgage broker license requirements (including a surety bonding or minimum net worth requirement) and other housing provisions. The bill now goes back to the House where changes are expected to be made, including an increase to the loan limits.

Over the weekend, in an effort to bolster investor confidence in Fannie Mae and Freddie Mac, Treasury Secretary Paulson announced that:

 - The GSE would be allowed to borrow money from the New York Federal Reserve,
 - U.S. Treasury would temporarily expand the GSE line of credit,
 - The Treasury should be allowed to purchase equity in Fannie and Freddie, and
 - The Federal Reserve should play a consulting role in setting capital requirements for Fannie and Freddie.

Some of what has been proposed may be implemented immediately, while some will need Congressional approval. Congressman Barney Frank has announced his willingness to work with the Treasury to include these proposals in the Housing bill. Unlike many press reports, this is not a government bailout of the GSE. OFHEO, Fannie, Freddie, key members of Congress and others have stated that the GSE are currently well above their capital requirements. The announcement this weekend is intended to boost investor confidence in the GSE so they may continue to raise more capital and provide liquidity to lenders. For more information you may visit the Treasury’s Press Release .

On Monday, July 14, the Federal Reserve announced their final rule for amending Regulation Z. According to the Feds the rule "prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices." The rule will create a new "higher-priced mortgage loans." The Feds will publish an "average prime offer rate" and any loan with a 1 st mortgage who’s spread is greater than 1.5% or subordinate mortgage with a spread greater than 3.5% will be considered a higher priced mortgage. The final rule for these loans:

 - Prohibit lending without verifying the borrower’s ability to repay,
 - Require verification of income and assets,
 - Ban prepayment penalties on four-year or less ARMs, and
 - Require the establishment of escrow accounts for taxes and insurance.

Al mortgages will prohibit coercion of appraisers, prohibit servicers from pyramiding late fees and require the immediate credit of payment on day it is received. The new rules will take affect on October 1, 2009. For more information you may visit the Federal Reserves Press Release .