You may have heard that on Wednesday, July 30, President Bush signed the recently-passed housing legislation (H.R. 3221) into law. The new first-time homebuyer tax credit went into effect immediately upon the President’s signature. What is all means to consumers is still being questioned. Some are hoping the credit will convert ”Just looking, thanks” home browsers into purchasers. But no one is really sure at this moment. Here are some items we do know:
1) The legislation has two principal objectives: to offer affordable government-backed mortgages to homeowners at risk of foreclosure, and to bolster Fannie and Freddie with a temporary rescue plan and a new, more stringent regulator.
2) A permanent increase in “conforming loan” limits. The law will permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,500 from $417,000.
3) A new home-buyer credit. The new law includes a tax refund for first-time home buyers worth up to 10% of a home’s purchase price but no more than $7,500.
4) The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments.
5) A ban on down-payment assistance from sellers. The new law eliminates a program that has allowed sellers to provide down payment assistance for FHA loans. This alone could reverse everything the bill was designed to do.
6) The law would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans. Again this only makes it tougher for some to find the money to buy a home.
7) Bolster Fannie and Freddie - A late and controversial addition to the new housing law provides temporary authority for the Treasury to lend a financial hand to Fannie Mae and Freddie Mac if the Treasury deems it necessary to help stabilize markets. Concerns over whether Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) will have enough money to weather future losses in the housing market has sent shares plummeting in recent weeks. Since the beginning of June, Fannie’s stock price has dropped 55% and Freddie’s plummeted 64%. For the past year, they’re both down over 80%.
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