Housing Rescue and Foreclosure Prevention Act 2008
August 4, 2008 by Stefan Swanepoel
Last week, President George Bush signed The American Housing Rescue and Foreclosure Prevention Act of 2008 (the Housing Act) into law.
It is the most sweeping housing legislation since the Great Depression. The new Act authorizes the Department of the Treasury to stem the tide of home foreclosures and provide a lifeline to mortgage lenders. With inventory in many large cities sitting at almost a one year level, and foreclosures expected to surpass 6 million by 2012, they have a huge task ahead.
Before we decide whether we should praise or criticize the Republicans or Democrats for this new piece of legislation, lets try and analyze it and see whether we think it will or will not put the brakes on the downward real estate slide of the last three years or not?
I'll start with my thoughts and then would love to hear your thoughts on any of teh various key issues:
1. $300 billion in FHA loans for Homeowners to Refinance
CLIFF NOTES: The Act could avoid foreclosure through refinancing into lower-cost mortgages insured by the Federal Housing Administration (FHA).
THE GOOD NEWS: It will help an anticipated 400,000 people whose loan servicers are willing to accept a write-down on principal.
REALITY: To qualify, borrowers must have a relatively high level of debt to income, use their homes as primary residences and agree to share any profits from any eventual resale with the government.
2. $4 billion to Buy and Rehab Foreclosed Homes
CLIFF NOTES: The Act offers $4 billion for local communities to buy homes at a discount, rehabilitate them, sell them and use profits for neighborhood development.
THE GOOD NEWS: This could help many low- and moderate-income families in holding on to the American Dream.
REALITY: Should reduce crime, especially in the inner city and low income areas.
3. New Home Buyer Tax Credit of up to $7,500 for Qualified Buyers
CLIFF NOTES: It’s not really a credit but really a loan.
THE GOOD NEWS: It’s refundable credit and it’s a zero-percent loan. An estimated 3 million buyers could be eligible for the tax credit.
REALITY: You got to pay it back.
4. New Deductions for Real Property Taxes
CLIFF NOTES: New deductions, in addition to the existing standard deductions.
THE GOOD NEWS: It’s effective immediately.
REALITY: These are “above the line” deductions.
5. Change in Vacation-home Status
CLIFF NOTES: The personal resident exclusion is still good on your personal home but not on your vacation home or rental property converted to a home.
THE GOOD NEWS: It’s effective until Jan. 1, 2009 so you still have time.
REALITY: The decade-long free ride is over.
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Posted in: Economy & Housing Bubble General Legal Mortgages & Loans Real Estate Marketing Real Estate Trends
I am hoping that this bill will help me out. I have been working with my lender since January on a Modification. They denied me in July but the next week said they would reconsider the modification. So far I have been sent a letter that is requesting money towards the modificaiton and proof of my home owners insurance. Does anyone know if this sounds like it might go through this time? If it doesn't then my hope is the Foreclosure Prevention Act. I know that it is supposed to take effect October 1st - but no one seems to know how to start the process, Can anyone tell me how? I know that I will have to share the profits from any eventual sale of my home, but as a divorced/single parent with 5 children and a blind critically ill mother to care for, staying here is my only option.
Hi Stefan,
The 700+ page document has lots of bells and whistles to help home owners avoid foreclosure, a tax credit to buy a first home, and money to keep cities that are being dessimated by foreclosures capable of buying those properties and keeping the neighborhoods intact.
I have read lots and lots about this, but the new property tax deduction paragraph is one that I will definitly look into.
Seller assisted down payments are being eliminated and that creates a problem for many of the first time home buyers. I believe that in California, about 70%+ buyers are using FHA financing for their homes and I wonder how many of those were getting down payment assistance from the many foundations and organizations that facilitate that.
Great post, as always.
Mary Supinger
Rescue program expires 20011.
Home owners who rented out there home to pay the morgage that they no longer can afford, because neg. amorization loan, should they move back in when the renters are late or the lease expires; one year max. even though the house is appraising at 109,900, but there morgage is 305,000?
Stefan,
What do you mean about the vacation home change and still having time? Does that mean I should buy my vacation home before the end of the year and get the tax break as second home, or the capitol gains issue will not longer apply? I have a Farm, that I was going to move into and live for the two out of the last five years so I can save at least $500,000 in capitol gain before I sell.
Good analysis of how the housing bailout bill will work in reality, as opposed to the propaganda about it. I just posted our analysis of the bill on our blog, and it echoes many of the issues you bring up. Time will tell whether this stops the bleeding, but it seems more like a few band-aids and maybe a couple of stitches for a patient who's lost a couple limbs.
Good summary Stefan. Any help is better than no help, but I don't think this is going to turn the ship. It might stop the slide and improve the optimism but that’s about it.
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