The Housing and Economic Recovery Act of 2008 is aimed at reigning in subprime loan fraud, but it’s also about economic stimulus so there may be a benefit in it for you.

While Bob Rogers, managing partner of Signature Mortgage in Huntsville, doesn’t consider the bill a bailout, he says it includes options for struggling and potential homeowners. It’s a comprehensive measure that includes reform and oversight of Fannie Mae and Freddie Mac, changes how the FHA can operate and permanently increases its loan limits, and includes a temporary tax credit for first-time buyers.

“All this is designed to help the U.S. economy and the ailing housing and mortgage industries,” Rogers says. “There are a lot of people hurting out there for a number of reasons. I think it was needed to calm the financial markets. Perception is reality, and people perceive the housing and mortgage problem as a huge problem that is hurting the American worker and the US economy. Something needed to be done to provide avenues for homeowners in need, calm people’s fears and help the financial markets.”

If you’re been thinking seriously about making the leap into home ownership, the act includes an incentive that may offer a nudge into the move.

The bill is effective immediately, though some provisions are effective Oct. 1.

First-time buyers (you haven’t owned a house in last three years) will get a $7,500 tax credit. Those who qualify are single people earning up to $75,000 a year or married people making up to $150,000 a year.

“The credit is generous, but is actually an interest-free loan that has to be paid back over 15 years at approximately $500 per year when your taxes are filed,” Rogers says.

You’ll want to pay close attention to the timing of your purchase, says Dorothy Lofton, branch manager of New South Federal Savings Bank, also in Huntsville. The house must be purchased between April 9 of this year and July 1 of next year. The credit is 10 percent of the sales price or $7,500, whichever is less.

“The bill also included increased tax breaks for property taxes for owners who do not itemize their deductions,” Lofton says. “This will help me. I don’t have a mortgage, and so I do not itemize. This is good.”

The FHA loan limit will be increased to $271,050. She says FHA loans are designed for, but not limited to, first-time homebuyers. It allows for a little higher debt threshold, is more flexible on credit history and allows 100 percent gift funds from “blood” relatives. However, she says a not-so-good change coming is the FHA down payment increasing from 3 percent to 3.5 percent between Oct. 1 and Jan. 1, 2009.

However, Rogers adds, seller-assisted down payment programs may be eliminated.

Lofton welcomes the bill that allows housing authorities such as the Alabama Housing Finance Authority (AHFA) to issue additional tax-free bonds to raise mortgage funds at lower interest rates within the guidelines of the AHFA program.

The bill committed the backing of the U.S. Treasury for Fannie Mae and Freddie Mac if they require capital in insuring mortgage-backed securities. According to Lofton, “While the least glamorous, this provision may have done the most toward helping get us out of the housing crisis by restoring investor confidence in the mortgage banking industry and increasing the money available at reasonable rates.”

The bill will provide more oversight to Fannie Mae and Freddie Mac, as well as increase the conforming loan limits from $417,000 to 115% of the local area median home price capped at a maximum of $625,000.

Overall, he says, while the bill doesn’t promise windfalls in the area’s more stable housing market, it will offer benefits and incentives to buying and owning a house.

Alabama housing market numbers remain good.

Lofton says the Alabama Monthly Housing Report for May shows subprime lending in Alabama as of late 2007 represented less than 10 percent of outstanding mortgages. Also, only 4 percent of them were the toxic subprime ARMs compared to a national rate of 48 percent. Alabama also rates among the top 10 states with the fewest foreclosures. The average house price in May increased 4.15 percent, compared to May of 2007. So far this year, the average house selling price increased .79 percent compared to the same time last year, and while that appears to be a small figure, it’s still a positive one.

Rogers says for homeowners who are “upside down” in a subprime mortgage (owe more than the house is worth), there is a refinance plan with the bill.

“This plan allows homeowners who meet the requirements to refinance their mortgage to a new 30-year Fixed FHA mortgage,” he says. “There are a number of qualifying details that must be met and requirements to be agreed to, including agreeing to split the equity in your home with the government in the future. Still, if you’re upside down on your mortgage and struggling in today’s economy, this is an option worth exploring.”

But Rogers says there are still difficult realities unaddressed or possibly exacerbated by this bill. Rogers he doesn’t believe it will help a majority of homeowners facing foreclosure because they still need some equity in the house and/or a reasonable credit score to refinance the house. Also, he considers it counterproductive to raise the down payment required and potentially eliminating down payment assistance programs. For those with marginal credit and little to no down payment money, this bill won’t help them, but it could help out-of-town residents who want to sell their homes to move closer to the Huntsville area.

“The tax credit of $7,500 is great, but we see most people needing money they don’t have for closing costs and down payments,” he adds. “The lack of money for a down payment and closing costs is the largest stumbling block to home ownership.”

Don’t let this dissuade you from considering a buy, however.

Rogers also says house prices are extremely reasonable now, loan rates are still historically low and the bill’s new incentives may entice you to buy more than ever before. “If you’re in the market for a new home or need to make some changes with your current mortgage take a hard look, this may be the time.”

Categories: Real Estate
Tags: home market, Loan, real estate, tax credits