Bush signs housing rescue law

From CNN today:

President Bush on Wednesday signed into law a sweeping housing bill that aims to boost the struggling housing market and bolster mortgage finance giants Fannie Mae and Freddie Mac.

Next step is for Investors, Wall Street and HUD to develop guidelines for the purchase of loans that fall into this category.

Benefits of the new law are:

1. Bolstering FNMA/FHLMC,
2. Established a nation wide registry system for Loan Originators.

On the license of Loan Officers, the SEC and NASDAQ require licensing for stock brokers (Series Seven License), why not Loan Originators as well? I see this as a vehicle to higher standards in the Mortgage Banking community. (Actually this is a rhetorical question.)

I see a couple of pot holes in the new law:

1. Max LTV is 90%. In markets values are declining or borrowers are essentially upside down in loan this may be an issue.
2. The current lien holder will be allowed to negotiate a lower payoff as well as waive prepayment penaltys and other fees.
3. Max DTI is 31%.
4. There is no language that I have seen regarding past due property taxes. If someone isn’t making their mortgage payment, chances are pretty good they aren’t paying their taxes either.
5. Increased upfront Mortgage insurance.

Appears that the only part of the bill that was not signed concerned was the ability for states to purchase foreclosed homes. CNN said “the administration still objects to parts of the legislation, including aid to states to buy foreclosed properties.”

I am not sure if this part was vetoed or if they are making a statement that they object.

We’re not out of the woods on this, it will take several months to get to the point where it can be implemented, and lenders can close loans.

From a technology point of view, there are several enhancements that will be required to be made to the automated underwriting systems of Fannie Mae’s Desktop Underwriter (DU) and Freddie Mac Loan Prospector (LP) to adopt the final underwriting guidelines. Investors will also be required to modify their existing loan origination and delivery systems.

Implementation of these technology upgrades are extremely difficult to made. Even after the law is passed, underwriting guidelines are developed it may be several weeks until the technology departments can actually implement them. I think it’s safe to say there are still a tremendous amount of outstanding items that need to be figured out.