Major housing bill nears passage

Mortgage Banking, August, 2008

A long-awaited major housing bill that would create a new regulator for the government-sponsored enterprises (GSEs), as well as modernize the Federal Housing Administration (FHA) and provide funding for FHA refinancings, passed the Senate in mid-July. The bill's passage was lauded by the Mortgage Bankers Association.

[ILLUSTRATION OMITTED]

Following weeks of debate and threat of a veto from President Bush, the Foreclosure Prevention Act of 2008 (H.R. 3221) passed the Senate by a vote of 63 to 5, shepherded by Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) and ranking member Sen. Richard Shelby (R-Alabama).

The bill creates a new GSE regulator, appointed by the president and confirmed by the Senate to a five-year term, with oversight authority similar to that of other bank regulators. The bill also establishes a new affordable-housing fund and capital-magnet fund to be funded by a 4.2 basis point fee on all new loans while raising the conforming loan limit to the local median home price, not to exceed $625,500, effective Jan. 1, 2009.

The bill modernizes the FHA program by authorizing an appropriation to improve technology, processes and program performance; eliminate fraud; and provide appropriate staffing.

Effective Jan. 1, 2009, it also increases the FHA loan limits to 110 percent of the local median home price, not to exceed $625,000. It also imposes a 12-month stay on the FHA's proposal for risk-based premiums, sets the down-payment requirement at 3.5 percent and prohibits seller-funded down-payment assistance--both direct and through a third party.

Furthermore, H.R. 3221 creates a voluntary program for lenders to write down the loan balance for certain borrowers in difficulty in exchange for an FHA-guaranteed loan not to exceed 90 percent of the newly appraised value of home. The lender would pay a 3 percent FHA loan origination fee, and to qualify, the borrower must have a debt-to-income ratio higher than 31 percent on the original loan. The program would be capped at $300 billion.

MBA Chairman Kieran P. Quinn, CMB, said that the bill, should it become law, "has the potential to be the most important piece of housing legislation in more than a decade."

"Fannie Mae and Freddie Mac play a crucial role in the smooth operation of the mortgage finance system, impacting about 70 percent of all home mortgages and affording the opportunity of homeownership to millions of Americans," said Quinn. "We are confident that the GSEs, as shareholder-owned companies, and regulatory authorities will ensure they continue to play that role, and this bill will strengthen their hand."

Other provisions of the bill include:

* Tax incentives--Creates a refundable tax credit (up to $8,000) for first-time homebuyers, expands the volume cap for the low-income housing tax credit (LIHTC) and allows for tax-exempt treatment of bonds guaranteed by the Federal Home Loan Banks. Also provides for the use of low-income housing tax credits against the alternative minimum tax, which should expand the investor base for this key generator of affordable rental housing production.

* Truth In Lending Act reform-Requires TILA disclosures to be delivered seven days prior to loan origination, requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms, and mandates that the consumer receive the disclosures before paying anything more than a nominal fee to cover the cost of a credit report.

* Empowering states--Raises the caps on tax-free bonds that state housing finance agencies may use to help at-risk homeowners by $11 billion, and provides $3.92 billion in supplemental Community Development Block Grant funds for communities to purchase and renovate abandoned and foreclosed properties in hardest hit housing markets.

* Licensing--Encourages state officials to create a national licensing system for residential loan originators, allows HUD to create its own national licensing system if the states fail, establishes minimum qualifications for all loan originators, and requires federal regulators to create a registry for banks and thrift employees who originate loans.

Following the bill's July 11 passage in the Senate, all eyes shifted to the House, where House leaders indicated their desire to bring the bill to the floor sooner rather than later.