Bush signs housing rescue law
July 30, 2008
By: Matthew Kelly
Author's Website: http://www.new.facebook.com/profile.php?id=615473763
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:
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:
- Max LTV is 90%. In markets values are declining or borrowers are essentially upside down in loan this may be an issue.
- The current lien holder will be allowed to negotiate a lower payoff as well as waive prepayment penaltys and other fees.
- Max DTI is 31%.
- 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.
- 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.
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Comments
4 Comments so far
Greg Afarian on July 31, 2008 7:00 am
In my opinion, if HUD wants FNMA and FHLMC to adopt such things as 90% LTV and a 31% MAX DTI we are really heading into tougher times. I am a very positive person, however this will force a lot of people right out of the housing marketing! Also, home prices will decline because now you have fewer people qualifying for a mortgage. I’ve been a mortgage professional since 1996 and in my experience I feel the people obtaining financing of 90% and lower with a DTI (Debt to Income Ratio) of below 31% is probably in the less then 10% of new homeowners. My thoughts, that’s a bad deal for homeowners (new and current).
Matthew Kelly on July 31, 2008 7:39 am
I agree with those comments but haven’t read anything that indicates HUD or the law will force Fannie/Freddie to accept the purchase those loans. Looks like they will all be FHA.
As was with the increase in conforming limits in certain MSA’s, it didn’t effect enough people to “move the needle”. The program was very confusing to the consumer purchasing a home as they thought “Jumbo Conforming” was the same as “Conforming” in rate when in reality it wasn’t. Borrowers also didn’t realize it was limited to certain MSA’s.
The 31% DTI is really curious. If someone has a 31% DTI it means they have an ability to pay. Why they are struggeling will really need to be looked at very closely.
It will be interesting to see what the new laws/programs actually allow as far as mortgage and consumer lates are concerned.
The 90% max LTV I think implies that lenders are willing to take losses on non or poorly performing loans. It’s essentially the same concept as a short sale, the lender is accepting a loss now to avoid the pain and agony of having to foreclose on the property and the tremendous expense related.
As far as the technology end of this is concerned, for homeowners that attempt to qualify for the program, I would expect a large number of “Refers” to manual underwriting.
Housing-stimulus bill realities | VARbuzz on July 31, 2008 11:37 am
[...] Matthew Kelly of Geek Estate offers a detailed list of suggestions. [...]
Pensacola Mortgage on January 19, 2009 4:57 pm
In the past 6 months since this article was posted, there have been many attempts and no solutions from Washington to “help homeowners”. Each one of the solutions seems good on the surface, but all of them have some sort of zinger in the fine print that renders the solution virtually worthless.
Maybe the incoming administration will “change” things, but I will believe it when I see it.
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