The funky new housing bill has me in a funk this morning. The more I look at it, the worse it looks.
The new housing bill continues the credit tightening we’ve seen for at least a year.
Since mortgage money more or less collapsed last summer, FHA loans have been a life line for the real estate market. Now our rocket scientist legislators have made FHA loans LESS attractive. Thanks for nothing, guys!
Notice in the email I ripped off from Robyn Robertson of Suburban Mortgage the new FHA guidelines.
- Minimum downpayment is now 3.5%. It was 3%. Not good. For first time homebuyers, however, it can go down to 2.25% if they take a class.
- No down payment assistance allowed from the seller or any person that benefits financially from transaction. That makes perfect sense since those loans default at a crazy high rate apparently. If Mr. Homebuyer doesn’t have any money in the deal, he’s a heck of a lot more likely to walk away if everything doesn’t go according to plan. Nevertheless, it will lower home ownership.
- The current FHA loan limit of $346,250 in metro Phoenix is expected to DECLINE! Huh?
The new housing bill will guarantee that home prices continue to decline at a steep rate.
I guess the only “good” news is that prices will bottom out sooner with this new legislation.
On the other hand, prices may bottom out lower with this new legislation.
{ 9 comments… read them below or add one }
dan 08.16.08 at 2:25 pm
Ironically, I was thinking about the housing bill yesterday too. I thought to myself: Could it be possible for the Feds to spend $300 billion dollars and help no-one? I want to meet someone that the housing bill helps.
Brian 08.16.08 at 2:43 pm
The intent of the Housing Bill, is to stabilize the financial system and avoid a meltdown, not to bail people out of their bad decisions. We saw this with Bear Stearns whose stockholders werre wiped out by the Fed arranged merger with JP Morgan. We will see it again soon as the Fannie Mae and Freddie Mac investors get diluted into oblivion.
As a taxpayer who is responsible for my financial affairs, I resent the idea of Fed Bailouts, but am in favor of rescue plans that save the economy as a whole. The majority think the same way, and have let Congress know that bailouts for people who make bad decisions, is not acceptable.
Paul Dunn 08.16.08 at 5:12 pm
It’s absolutely silly. In fact now you have an indirect way for the IRS to fund a first time home buyers down payment…
Philip 08.17.08 at 2:19 pm
I agree with a free market economy, also, most of the time. This bill, now law is awful. It hurts the general economy during a time when we should be thinking about how to grow it.
I am very concerned and so should you be about (at least) one specific part of
the Omnibus Housing and Economic Recovery Act, signed by the President that Senators Chris Dodd (D-CT) and Richard Shelby (R-AL) authored.
As of October 1, 2008, the Act raises the down payment REQUIRED for all FHA loans from 3% to 3.5% by the buyer. BUT THAT’S NOT ALL AND CERTAINLY NOT THE WORST OF IT!
In many instances buyers without a lot of savings CAN and DO buy homes. Often, a seller interested in selling their home to a buyer will contribute the 3% required by the FHA to the buyer. For legal purposes, this is done by the seller contributing the 3% to a non-profit agency who in turn contributes the same 3% for the buyer’s down payment.
As of September 30th, no outside party will be able to contribute the 3.5% for the buyer’s closing costs. No longer will non profit programs like Nehemiah or AmeriDream be able to make the down payment.
From the Congressional Weekly: “(Sec. 113) Increases from 3% to 3.5% of the appraised value of a property the mortgagor’s required cash (or equivalent) investment (down payment). Prohibits any funds for such cash investment from: (1) the seller or any other person or entity benefiting financially from the transaction (seller-funded down payment assistance); or (2) any third party or entity reimbursed by any of such parties.”
This will eliminate over 50,000 sales of homes per year around the country. Think of the builder’s inventory that won’t get eaten up. Think of pre-owned housing inventories that won’t go down. Not to worry? This will only impact nearly 90% of all home buyers and home sellers in the nation! PLUS, it will delay the rise in any appreciation your current home was likely to begin seeing again. Remember, housing is a long chain of events created by hundreds of buyers and sellers.
THIS WILL IMPACT 50,000 deals a year according to a conference call I was on today with Nehemiah. 50,000 DEALS A Year! If the average house is even pegged at $200,000 we are looking at $10,000,000,000 a year that will not change hands, and will have a serious impact on the economy, as if the economy was not bad enough.
Fewer home owners mean fewer jobs in the housing industry. Fewer jobs mean less capital goods being sold which means even fewer jobs. Nobody can sit back and be smug about this bill. It’s a bad piece of legislation. It’s bipartisan. The congress and the President should once again be ashamed of themselves. Their thinking goes to November 4th and no further. Neither of our presidential candidates had the guts to vote for or against the bill. That was just what I wanted to see, more “leaders” who won’t look out for ‘The People”, just the bail outs of the JP Morgan’s and others on Wall Street.
The NAR has truly let us (REALTORS) down by supporting this bill. RPAC will never receive one more dime from me. And they have the guts to whine we are not contributing enough. That’s real guts!
Brian 08.17.08 at 8:50 pm
As someone outside the RE industry, I am fine with provisions in the Bill that eliminate zero down arrangements. As John points out, it is very easy to walk away from a home where nothing is lost by doing so. This is really the crux of our current problem in real estate. The people who had no skin in the game were the first to leave, and started the dominos falling (though pros in the industry are the ones who set up the dominos in the first place).
As a taxpayer, I am glad the Feds are making it tougher to buy a home. Should never have been so easy in the first place! I don’t want to pay for the same mistakes in another 15 years.
david wilson 08.17.08 at 9:38 pm
Oh my!
Downpayments of a whopping 3.5%!
Prices will lower to just severly overpriced instead to wildly severly overpriced.
This is HORRIBLE! Horrible, I tells ya.
Russ 08.19.08 at 12:00 pm
“As of September 30th, no outside party will be able to contribute the 3.5% for the buyer’s closing costs. No longer will non profit programs like Nehemiah or AmeriDream be able to make the down payment.”
That is the only part of the law that I like.
saundra 10.10.08 at 9:44 am
My sister said that a new law was passed where home buyers do not have to pay closing cost anymore. Have you heard anything about this?
John Wake - Real Estate 10.10.08 at 5:41 pm
saundra,
“My sister said that a new law was passed where home buyers do not have to pay closing cost anymore.”
I don’t know what that would be. Perhaps it is one of those down payment programs where the city or whoever will give first time home buyers say $5,000 which they can use for down payment and/or closing costs… but they have to pay it back when they sell unless they live in the house for 5 years or more.
Or similar type programs.