H.R. 3221 Housing And Economic Recovery Act of 2008

Conforming Loan Limits
The Bill raises loan limits for single family houses; allowing GSE loans up to 15% of the local area median home price, and to make GSE loans effective in high cost areas by raising the loan limit from $417,000 to $625,500. (Starts at Page 96) (Later in the next update I will discuss how this will affect FHA loans.)Keep in mind that the temporary loan limits you currently have will remain in place until 12/31/2008. HUD will most likely recalculate the Area Median Home Prices for 2009.Division A – Housing Finance Reform Title IV “HOPE FOR HOMEOWNERS”
Creation of a new FHA Loan Program “Hope for Homeowners Program” (aka FHA Rescue): (page 394)
The purpose of the Program is to insure refinanced loans for distressed Borrowers; allowing owner occupant homeowners to avoid foreclosure by reducing their principal outstanding balance and their current interest rate; (think of a short sell refinance)
The Bill authorized $300 Billion in loan guarantees from October 1 2008, through September 30, 2011 to establish the “Hope For Homeowners Program”.
Participation in the program is voluntary on the part of the existing Lender. No Lender of a distressed Borrower is required to accept the terms of the program. (Page 401)
Requirements for “Hope For Homeowners Program” (HOPE loan) (starts page 397):

Principal residence only;Borrowers certify that they did not intentionally default on the mortgage for the purpose of obtaining the HOPE loan.Borrowers mortgage debt to income (including all existing mortgages) as of March 1, 2008 must be 31% or higher; (page 398)Calculation of the new loan amount will be based on (page 398):

Borrower’s ability to make mortgage payments determined by FHA or by other underwriting standards established by the Board; Look for the underwriting criteria to be released; AND
LTV limited to 90% of the appraised value;

The existing lien holder must waive any prepayment penalties and fees; (page 399)All existing lien holders (1st and 2nd) must agree to accept the proceeds as payment in full of all indebtedness under the HOPE loan; and all encumbrances must be removed. Look for further guidance on this point as FHA releases the program.Those lien holders of existing subordinate mortgages will be entitled to future appreciation in the property. Standards and policies of the shared appreciation will be developed by FHFA. Factors used to establish this shared appreciation will be: (page 400)

Status of subordinate mortgage;Outstanding principal balance and accrued interest on senior mortgage and any outstanding subordinate mortgages;
The extent to which the current appraised value is less than the outstanding principal balance and accrued interest on any other liens that are senior and any other factors established by FHFA.

Rate and Term – The new rate will be fixed with a term not less that 30 years: (page 401)Loan Amount – The new loan amount cannot exceed $550,400.00; which is 132% of Freddie Mac loan limit established in 2007. ($417,000 x 132% = $550,400.00) (page 401) I am not sure how this is going to work in the High Cost Areas, we will need to wait and see what FHA determines.Second Liens – Borrower cannot put a new 2nd lien on the property for 5 years after the refinance takes place; except as FHFA determines to be necessary to ensure the maintenance of property standards and provided the new lien: (page 402)

Does not reduce the Government’s equity in the home; and
The CLTV does not exceed 95%

Income Documentation – documented by (page 403) must income qualify.

Income tax return transcript for most recent two (2) years, or
Copy of Tax Returns for the most recent two (2) years;

Mortgage Fraud – the Borrower cannot have been convicted of mortgage fraud under Federal or State law during the past 10 years. (page 404)Primary Residence – Borrower must supply documentation to prove that the residence being refinanced is their primary residence and is their only residence owned. If the Borrower owns investment property(s), they would not be allowed to participate. (page 404)Appraisal Independence – No one involved in the transaction can improperly influence or attempt to influence, through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, non-payment for services rendered or bribery, the development reporting, result or review of an appraisal sought in connection with the mortgage. (page 407)MI Premiums

A 3% up-front premium will be paid from proceeds of the mortgage, through the reduction of the amount of indebtedness that existed on the loan being refinanced; and
The annual premium will be 1.5% of the loan amount. This loan won’t come cheap; but look what the Borrower is getting – They get to keep their house! (page 409)

Origination Fees and Interest Rate – (page 409)

FHFA will establish a reasonable limitation on origination fees for the HOPE loan; and FHFA will establish procedures that ensure the interest rate will be commensurate with market rates on such loans.

Equity Appreciation – Upon any sale or disposition of the property or subsequent refinance there will be a shared equity appreciation on a graduated scale. (page 410)

Sale or refinance within one (1) year entitles HUD to 100% of the equity appreciation.Sale or refinance within more than 1 year and less than 2 years entitles HUD to 90% of the equity appreciation.Sale or refinance more than 2 years and less than 3 years entitles HUD to 80% of the equity appreciation.Sale or refinance more than 3 years and less than 4 years entitles HUD to 70% of the equity appreciation.Sale or refinance more than 4 years and less than 5 years entitles HUD to 60% of the equity appreciation.
Sale or refinance within 5 years entitles HUD to 50% of the equity appreciation.

Revised Standards for FHA Appraisers – Beginning October 1, 2008 any FHA appraiser must: (page 422)