Significantly, the measure represents a balanced approach to housing policy by trimming home-ownership incentives, and balancing single- family incentives with expanded rental housing incentives.
Here are some highlights:
FHA foreclosure rescue
This creates a refinance program for home buyers with problematic subprime loans. Lender participation is voluntary. Lenders would write down qualified mortgages to 85 percent of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90 percent of appraised value. Borrowers have to share 50 percent of all future appreciation with FHA. Program is effective on October 1, 2008.
Newly-created is a new Federal Housing Finance Agency (FHFA) to oversee the GSEs’ financial safety and their affordable housing mission. The FHFA replaces the Office of Federal Housing Enterprise Oversight and HUD. The FHFA director will be appointed by the President and confirmed by the Senate for a five-year term. The new regulator has enhanced authority to set limits on Fannie and Freddie’s combined $5.4 trillion portfolio based on safety and soundness operations, and to set higher capital requirements for the GSEs.
The new regulator will have a greater say over GSE portfolio holdings by conducting periodic reviews of assets and obligations, both on- and off-balance sheet. It may conduct audits, order internal controls, and restrict executive pay.
Thanks to NMHC/NAA’s efforts, the bill does not contain onerous provisions from earlier versions that would have severely restricted the GSEs’ ability to purchase multifamily loans. As a result, even with the stronger regulator, multifamily lending by the GSEs is expected to operate business as usual. With few, if any, multifamily defaults on their books, the two mortgage giants will continue to serve as a steady source of debt capital for the apartment sector.
This provides a federal backstop for Fannie Mae and Freddie Mac. In the event of a financial crisis, the bill gives the Treasury Department unlimited spending authority to increase the GSEs’ line of credit with the federal government or to purchase equity in the two.
If the assistance is utilized, both the Treasury Department and the Federal Reserve would be granted new oversight powers to consult with the FHFA in setting the GSEs’ capital standards. Those provisions expire in December 2009.
Home ownership incentives trimmed
FHA zero-down rejected. The bill ends a multi-year effort by the Administration to create a federally-insured, zero-down payment program. Instead, the final bill actually raises the FHA down payment requirement from 3 percent to 3.5 percent.
Seller-financed “charitable” down payments are banned. NMHC/NAA have long opposed these programs because of abuses. The FHA has twice attempted to ban the programs through regulatory action, noting that they produce loans that are three times as likely to go into foreclosure. Such seller-assisted loans now account for one-third of the agency’s portfolio.
First-time home buyers credit. Lawmakers originally proposed a $15,000 tax credit for anyone who would buy a foreclosed house as their primary residence. That measure was widely criticized by academics, economists and housing experts on both ends of the political spectrum as a policy prescription that would do more damage than good. NMHC/ NAA helped persuade lawmakers that such a credit would likely increase foreclosures, accelerate house price declines and do nothing to increase housing demand. Lawmakers instead passed a temporary tax credit for first-time home buyers equal to 10 percent of the purchase price of a principal residence, not to exceed $7,500.
Gain on sale of second houses. Present law allows owners to exclude up to $250,000 of gain if the house has been used as a primary residence for two of the five years before the sale. The housing bill amends that to require, as of January 1, 2009, any gain accrued when the home is not used as a primary residence will be taxed as capital gain.
Low-income housing tax credit
The final housing package increases the annual per capita cap for the Low-Income Housing Tax Credit (LIHTC) from $2.00 to $2.20 in 2008 and
2009 and helps restore liquidity to the program by allowing the credits to offset alternative minimum tax (AMT) liabilities for buildings placed in service after December 31, 2007. The measures will make several NMHC/NAA-supported technical corrections to the program to simplify it.
Throughout our lobbying effort on this bill, NMHC/NAA urged Congress to rethink our national housing policy and to adopt a more balanced housing policy that encourages a vibrant rental market along with a functioning ownership market. We will continue to work with Congress to enact a more balanced housing policy that better meets our evolving housing needs and preferences.better meets our evolving housing needs and preferences.