The Basics Of The Hope For Homeowners Act

The new Hope for Homeowners Act is considered to be the most significant housing bill Congress has passed in 50 years. The original intent of the bill was to help homeowners facing foreclosure, but the final bill was expanded to include help for Fannie Mae and Freddie Mac and a tax credit for first-time buyers, among other provisions. Although most experts believe that the new legislation is more of a stop-gap measure than a cure-all, the legislation will certainly affect the housing market and mortgage industry going forward.

The main thrust of the Hope for Homeowners Act is to allow homeowners who can’t afford their mortgages to refinance into more affordable loans. To this end, the Federal Housing Administration expects to insure $300 billion in these new loans and aims to help over 400,000 homeowners. These FHA loans will be available to cash-strapped homeowners who can show that they’re able to afford the new loan. In order to get these loans, however, lenders would first have to agree to take a loss on the existing loan in exchange for avoiding costly foreclosure procedures.

The new legislation is also aimed at shoring up mortgage giants Fannie Mae and Freddie Mac. Although Fannie Mae and Freddie Mac will now have increased government oversight and tougher regulations, the companies will be allowed to borrow from the U.S. Treasury. Also, the bill will allow the government to buy shares in the companies if the need arises. Finally, the Hope for Homeowners Act will increase to $625,000 the size of home loans the two companies can buy.

In an effort to stimulate the market, the new legislation also provides for a $7,500 tax credit for first-time homebuyers. This tax credit was originally slated to be a free credit, but was later changed to require first-time buyers to repay the tax credit in 15 years or if the property is sold before that time. The homebuyer is required to pay back the credit at a minimum rate of $500 per year and the credit will apply to any first-time homeowner who purchases a home before July 1, 2009. Essentially, the tax credit will function as a no-interest 15-year loan.

The Hope for Homeowners Act will also affect several other areas. The new measure will drastically overhaul the FHA, allowing the FHA to increase the funds available in their various programs and increase the number of loans that can be written. Also, the new legislation will earmark nearly $4 billion in funds for those communities who have been hit hard by foreclosures. The funds will be used to purchase, rehabilitate, and resell foreclosed homes in order to stabilize those communities. ∆