Lessons from the Pros


New and Existing Legislation that Helps and Hurts Housing

Washington, DC and its policy makers can make any business person crazy. In the last couple of months, there have been actions taken that will help investors, hurt new home buyers and help existing home buyers.

We’ll start with some positive news for investors. The FHA will continue to waive the Anti-Flipping Rule through the end of 2012. What does this mean? Up until February of 2010, the FHA wouldn’t insure a loan made on a property that wasn’t “seasoned.” Seasoned means holding an asset (i.e., property) for a period of time. In the past, the FHA has required 90 days of ownership by the seller before it would insure a new loan.

This Rule was waived in 2010, extended in 2011 and now again in 2012. The FHA says the waiver allows homes to resell quickly, helping to stabilize real estate prices and revitalize communities experiencing high foreclosure activity. “This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Carol Galante, FHA’s Acting Commissioner. “FHA remains a critical source of mortgage financing and stability and we must make every effort to promote recovery in every responsible way we can.”

The FHA has put conditions in its guidelines that help protect unsuspecting borrowers from predatory flipping in which properties are quickly resold at inflated prices. Among these conditions, all transactions must be arms-length, without a link between the buyer and seller.

This next item is a quote from a mortgage newsletter I receive – “Interest rates on conventional loans will be going up due to the new Payroll Tax Extension Law that was recently signed into law…”

The facts are as follows: The payroll extension isn’t a tax cut, per se. It is a cut in the amount of payroll taxes withheld from a typical payroll check. This is an extension of the Bush Tax Cuts done back in December of 2010.

Fact two: Where is the money coming from to pay for this? The answer is new real estate loans designed to be sold to Fannie Mae or Freddie Mac (an increase of the interest rate of .0125 percent). For how long you many ask? 10 years, from Feb 17, 2012 to Feb 17, 2022. Yes, you saw that correctly, 10 years for a two month extension of the payroll tax.

The result is that the most struggling part of our economy is going to pay for this tax extension. Don’t get me wrong, I believe the extension is a good move, but not on the back of the new homeowner. So, now we have just added more debt to the homeowner in most cases for 30 years.

What does this look like in dollars? I’ve heard estimates anywhere from $11 a month increase to $50 on an average loan…

The last thing I’d like to highlight is the changes that have been made in HARP (Home Affordable Refinance Program). This program failed when it was launched in March 2009. The biggest reason for this failure was that the borrowers who were deeply underwater could not refinance because HARP loans were limited to no more than 125 percent of the LTV (loan to value). The new program (guidelines were provided to lenders on Nov. 15th 2011) will remove the LTV Cap.

Here are the other main changes to the program:

  • Borrowers will not need a new property appraisal if Fannie and Freddie have enough data in their automated valuation system to estimate the value of the property.
  • Fees will be eliminated for borrowers who refinance their mortgages into a shorter term loan such as a 20-year mortgage or a 15-year mortgage.
  • The program, scheduled to expire in June 2012, has been extended through the end of 2013.
  • Those who bought a house as their primary residence, but now hold the property as an investment, will be able to refinance through HARP at an additional cost.
  • Lenders will be waived of certain liabilities on the original loans if they refinance those loans through HARP.

I enjoy the opportunity to be your watchdog on this kind of legislation.

Great Fortune,

– Diana Hill dhill@tradingacademy.com

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