What the New Housing Act Means - Part 1

You may remember that I was shocked when the Federal Reserve announced new regulations regarding the mortgage industry. I was upset because the effective date of the new rules is over a year away, October 1, 2009.

Question: Isn't this a serious problem and shouldn't we be doing something NOW?

I guess not, but then we had the passage last week of another new law. Let's look at one important feature of that law.
 
You know you are somewhere in Never-never Land when something called the AMERICAN HOUSING RESCUE AND FORECLOSURE PREVENTION ACT OF 2008 has an opening paragraph that states:

"An Act moving the United States toward greater energy independence and security, developing innovative new technologies, reducing carbon emissions, creating green jobs, protecting consumers, increasing clean renewable energy production, and modernizing our energy infrastructure, and to amend the Internal Revenue Code of 1986 to provide tax incentives for the production of renewable energy and energy conservation."

SAY WHAT?  What does Housing Rescue have to do with "greenness?" Such are the ways of Washington D.C. where it is apparently a sin to describe what you mean in ordinary English.

Those of us in California have been particularly interested in the increase of 50% in the Conforming loan limit from the current $417,000 to $625,000. This has potential benefit to many homeowners in high cost areas such as California, Nevada, and Florida that have been hard hit.

So the language of the law states:

"Such foregoing limitations shall also be increased with respect to properties of a particular size located in any area for which the median price for such size residence exceeds the foregoing limitation for such size residence, to the lesser of 150 percent of such foregoing limitation for such size residence or the amount that is equal to the median price in such area for such size residence." NOTE $417,000 * 150% = $625,000."

OK, that's terrific. Pretty clear, once you find it. So when does this take effect?

"(3) Effective date.--The amendments made by paragraphs (1) and (2) of this subsection shall take effect upon the expiration of the date described in section 201(a) of the Economic Stimulus Act of 2008 (Public Law 110-185)."

Lets' go find the Economic Stimulus Act of 2008

This is Act that sent you a tax refund designed to jump start the economy. It also contained a provision for a temporary increase of the Conforming loan limit. That law says the limit may be increased to:

"125 percent of the area median price for a residence of the applicable size, but in no case to exceed 175 percent of the limitation for 2008 determined under such section 302(b)(2) for a residence of the applicable size." [NOTE $417,000 *175% = $729,750 which is the so-called "Jumbo Conforming limit."]

It also says that

"(a) Increase of High Cost Areas Limits for Housing GSEs - For mortgages originated during the period beginning on July 1, 2007, and ending at the end of December 31, 2008."

So you can see the act that we have all been waiting for will not take effect for another five months. Jeesh!

What is ironic is that the last statement in THAT law says:

"(e) Sense of Congress- It is the sense of the Congress that the securitization of mortgages by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation plays an important role in providing liquidity to the United States housing markets. Therefore, the Congress encourages the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to securitize mortgages acquired under the increased conforming loan limits established in this section, to the extent that such securitizations can be effected in a timely and efficient manner [my emphasis added] that does not impose additional costs for mortgages originated, purchased, or securitized under the existing limits or interfere with the goal of adding liquidity to the market."

They are assuming that between now and December 31st the temporary Jumbo Conforming loans will accomplish their objective. But there is a problem.  There are some significant differences in qualification criteria between Jumbo Conforming and Conforming. More specifically, I mean that there are people who WOULD qualify today for a $625,000 loan under Conforming loan criteria but who DO NOT qualify under Jumbo Conforming criteria.  Go figure!

Comments

[Kendis]

Greeting. Assuming either the Left Wing or the Right Wing gained control of the country, it would probably fly around in circles.
I am from Eritrea and learning to speak English, tell me right I wrote the following sentence: "Visit discover magazine to read this article and other exclusive science and technology news stories."

Thank you very much :o. Kendis.