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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. ∆ |
