The Federal Housing Finance Regulatory Reform Act of 2008
30/05/08 09:52 Filed in: Regulatory
| US
The
Senate's bill to assist homeowners has passed its
final vote. While there is no way to know if the bill
will become law, it still makes for interesting
reading. The loans are privately issued with
insurance protecting the lender against future
default
To help stem the foreclosure crisis, the Federal Housing Administration would be allowed to insure up to $300 billion in new loans. The program is focused on at risk borrowers who are likely to default if they can not find a way to refinance.
To qualify for the loan program specific qualifications which must be met.
Politically, the bill has concessions to improve the regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Bank system. Some politicians have wanted to reform the entities for some time. A trade was done to gain support for the consumer bailout.
To repeat a bit, the bill is the Senate's proposal. There is a House version. They will need to be merged or reconciled before being presented to the President for his signature. In the past the President indicated that he would veto the House bill. A veto is still a possibility after the two bills are reconciled.
Who feels a consumer bailout is in order? Even if a bailout is not the pure capitalist thing to do it could benefit real estate investors by stabilizing house prices. Or it could be seen as a negative because it will reduce the number of bargains that investors are presently choosing between.
To help stem the foreclosure crisis, the Federal Housing Administration would be allowed to insure up to $300 billion in new loans. The program is focused on at risk borrowers who are likely to default if they can not find a way to refinance.
To qualify for the loan program specific qualifications which must be met.
- The loan must be secured by the borrower's primary residence.
- The loan must be in 1st position with no junior debt (2nd loan or otherwise). Junior debt must be completely forgiven.
- The borrowers debt to income ratio has to be greater than 31%.
- The lender in 1st must forgive enough of the debt so that there is 10% equity above the new loan. The equity is given to the borrower by the lender.
- The borrower taking out the new government backed loan must agree to share the equity with the government when they refinance or sell the home.
Politically, the bill has concessions to improve the regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Bank system. Some politicians have wanted to reform the entities for some time. A trade was done to gain support for the consumer bailout.
To repeat a bit, the bill is the Senate's proposal. There is a House version. They will need to be merged or reconciled before being presented to the President for his signature. In the past the President indicated that he would veto the House bill. A veto is still a possibility after the two bills are reconciled.
Who feels a consumer bailout is in order? Even if a bailout is not the pure capitalist thing to do it could benefit real estate investors by stabilizing house prices. Or it could be seen as a negative because it will reduce the number of bargains that investors are presently choosing between.
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