Congress recently passed a new housing bill, and lawmakers claim that it will do much to help distressed homeowners. While many will now be able to refinance their loans to more affordable ones, it may be others who really benefit from the bill-including people who don't yet own a home.

The new housing bill that just passed through Congress is a complicated package of benefits that may help some who are facing foreclosure, depending on whether they qualify. What it definitely offers is substantial perks for seniors, members of the military, and first-time homebuyers.

Bill highlights

Here are some highlights of the bill:

  • About 400,000 homeowners with adjustable-rate loans may be able to replace them with new, more affordable fixed-rate loans to avoid foreclosure. But by only offering a superficial overview, many media reports have led the public to believe it's a done deal. A closer examination reveals that in order to qualify for the new loans, homeowners have to meet specific criteria, including verification of income.
  • The rescue provision only applies to those who originated loans before this year, and the mortgage has to be on a primary residence, not a vacation or investment property. Additionally, borrowers must document that their monthly housing expenses are more than 30 percent of overall income. Those who don't meet these criteria are out of luck.
  • The real kicker is that lenders have to voluntarily agree to forgive all debt owed by borrowers that exceeds 90 percent of the home's current appraised value. Many homeowners are severely upside down in their loans, and lenders may refuse to forgive those balances, especially since they could get sued for the difference by investors who bought their loans in the secondary market.

Good things ahead

On the positive side, other provisions offer new and improved perks and protections.

  • First-time homebuyers will be eligible for a federal tax credit of up to $7,500.
  • Fannie Mae is permanently authorized to trade in jumbo loans. Maximum mortgage amounts insured or guaranteed by Fannie Mae, Freddie Mac, and the FHA have also been permanently increased.
  • The new bill limits the cost of origination fees on reverse mortgages, and requires more training for those who act as counselors who advise seniors about the pros and cons of such loans.
  • Service members returning from active duty abroad will be offered special protections against foreclosure. Those called up for active duty will be protected from unexpected interest rate hikes until after they return home.
  • The FHA will also raise the amount of its insured loans for purchases of manufactured houses from $48,000 to about $70,000.

The new bill will disappoint homeowners who were expecting a guaranteed foreclosure rescue, because they won't meet its eligibility requirements. But it will be good news for many others, and may help stimulate the housing sector by making it easier to find financing while enjoying other attractive benefits.

Published on August 20, 2008