House and Senate have reached agreement & seller participation in downpayment assistance loans is being terminated as of 10-1-2008

· The House and Senate have reached agreement on the omnibus Housing bill

· Seller participation in downpayment assistance loans is being terminated. Must have obtained credit approval prior to October 1st.

· Risk-based pricing moratorium is effective October 1st

· No changes to FHA broker eligibility requirements

· House is expected to begin debate and possibly vote on Wednesday (July 23rd) on the final version of the omnibus housing bill

· The Senate could vote as early as Friday on the final bill with the President signing shortly thereafter (possibly early next week)

Below is the link to the complete bill. The FHA provisions start on page 477.

We will keep you apprised as the bill moves toward enactment.

I. Housing Legislation

The House and Senate completed their negotiations on the omnibus housing bill.

The major provisions of the omnibus housing bill are:

a. FHA Modernization

b. FHA Rescue (Foreclosure relief)

c. GSE Reform

d. Tax provisions (Maximum tax credit was lowered to $7,500 for first-time homebuyers.)

e. Secure and Fair Enforcement for Mortgage Licensing Act of 2008 or “S.A.F.E. Mortgage Licensing Act of 2008

1. Establishment of nationwide mortgage licensing system for loan originators

II. FHA Provisions

Barring a totally unforeseen circumstance, below are the expected final provisions of the FHA portion of the bill.

Ø Mortgage limits

· FHA base limit (“floor”) is increased from 48% to 65% of GSE limit ($271,050)

· Maximum loan amount in high cost areas is increased to 150% of the current GSE base limit ($417,000). The new limit for FHA, Fannie and Freddie will be $625,000. VA should have equivalent guaranty ($156,250)

· The factor for calculating increases is 115%


As we reported in our last update, an area w/ a median sales price of $500,000 currently has a maximum loan amount of $625,000. Using the 115% factor, the maximum loan amount would drop to $575,000 ($500,000 x 115%) when the Stimulus bill expires at the end of the year. For areas w/ medians at $400,000, the FHA and GSE maximum limit would decline from $500,000 to $460,000 after the Stimulus bill expires in December. (For areas w/ $300,000 medians, the limit would drop from $375,000 to $360,000 and so on.)

Ø Cash investment requirement

· The minimum cash investment is 3.5%. It will, at least, be a simpler calculation eliminating the state closing cost variation.

· Gifts will be permitted from family members, unions, and state and local bond programs,etc). Seller funded downpayment programs are discussed below.

Ø Seller funded downpayment assistance programs

· Any downpayment assistance programs involving sellers or other interested third parties will be terminated on October 1, 2008

o Borrowers must be approved on or before September 30th.

Ø Risk-based pricing moratorium

· Risk-based pricing moratorium for one year will be implemented on October 1st.

· HUD asked for time to prepare new instructions and to modify its systems

· Legislation does permit FHA to raise upfront premiums up to 3%.

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