The American Housing Rescue and Foreclosure Prevention Act of 2008 (the Housing Act) was signed into law last week as the most sweeping housing legislation since the Great Depression. The new Act authorizes the Department of the Treasury to stem the tide of home foreclosures and provide a lifeline to mortgage lenders.
It’s significant as the last legislation addressing a large group of homeowners was the National Housing Act of 1934 that created the Federal Housing Administration and authorized the creation of Fannie Mae.
The new Housing Act of 2008 is expected to do many things. Here’s my quick and direct take on the key issues:
1. $300 billion in FHA loans for Homeowners to Refinance
CLIFF NOTES: The Act could avoid foreclosure through refinancing into lower-cost mortgages insured by the Federal Housing Administration (FHA).
THE GOOD NEWS: It will help an anticipated 400,000 people whose loan servicers are willing to accept a write-down on principal.
REALITY: To qualify, borrowers must have a relatively high level of debt to income, use their homes as primary residences and agree to share any profits from any eventual resale with the government.
2. $4 billion to Buy and Rehab Foreclosed Homes
CLIFF NOTES: The Act offers $4 billion for local communities to buy homes at a discount, rehabilitate them, sell them and use profits for neighborhood development.
THE GOOD NEWS: This could help many low- and moderate-income families in holding on to the American Dream.
REALITY: Should reduce crime, especially in the inner city and low income areas.
3. New Home Buyer Tax Credit of up to $7,500 for Qualified Buyers
CLIFF NOTES: It’s not really a credit but really a loan.
THE GOOD NEWS: It’s refundable credit and it’s a zero-percent loan. An estimated 3 million buyers could be eligible for the tax credit.
REALITY: You got to pay it back.
4. New Deductions for Real Property Taxes
CLIFF NOTES: New deductions, in addition to the existing standard deductions.
THE GOOD NEWS: It’s effective immediately.
REALITY: These are "above the line" deductions.
5. Change in Vacation-home Status
CLIFF NOTES: The personal resident exclusion is still good on your personal home but not on your vacation home or rental property converted to a home.
THE GOOD NEWS: It’s effective until Jan. 1, 2009 so you still have time.
REALITY: The decade-long free ride is over.
Closing Thoughts
With inventory in many large cities sitting at almost a one year level, and foreclosures expected to surpass 6 million by 2012, this legislation will probably put the brakes on the downward real estate slide of the last three years. At the same time, it’s no silver bullet either and will not in itself turn the real estate market. |
