DeBat: Uncle Sam’s housing stimulus applauded by buyers and Realtors

Don DeBatHomeowners with roofs over their heads are applauding Congress’ passage of a housing stimulus bill as the most important legislation affecting real estate since President Franklin Delano Roosevelt created the Federal Housing Administration during the Great Depression.

With home prices down 16 percent nationwide from their 2006 peak, and with foreclosures at a record high, lawmakers have been working on the housing bill for months in an effort to help homeowners and bolster the overall market.

The legislation is the centerpiece of Congress’ efforts to bail out as many as 400,000 troubled American homeowners. The law offers affordable, government-backed mortgages to homeowners at risk of foreclosure and strengthens the battered secondary mortgage market agencies Fannie Mae and Freddie Mac with a temporary rescue plan.

“Realtors are in the business of building communities, and our 1.2 million members understand that this legislation will go a long way in helping people buy and keep their homes,” says Dick Gaylord, president of the National Association of Realtors.

The Illinois Association of Realtors say the Housing and Economic Recovery Act of 2008 will help stabilize the Illinois housing market, boost buyer confidence and offer a lifeline to many facing foreclosure.

“This legislation, and particularly the tax credit, will help first-time home buyers who’ve been on the sidelines waiting for the economy to improve to take that important step up to homeownership,” says IAR President Kay Wirth. “The significant provisions of this bill should bring some stability back to the housing market in Illinois and across the country.”

First-time home buyers have until June 30, 2009 to take advantage of the $7,500 tax credit. They also can benefit from the large selection of homes available on the market and affordable mortgage interest rates, Wirth notes.

Under the legislation, the FHA will be allowed to insure up to $300 billion in new 30-year, fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90 percent of the home’s current appraised value.

The law will permanently increase the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,500 from $417,000. The FHA maximum loan limits for high-cost areas would also increase to a maximum of $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because those mortgages are more likely to be traded if they are considered conforming.

The new law eliminates a program that has allowed sellers to provide down-payment assistance for FHA loans. The law would also increase the down-payment requirement for borrowers getting FHA loans to 3.5 percent from 3 percent.

The law also gives states $4 billion to buy up and rehabilitate foreclosed properties.

Ironically, some of the biggest cheers came from the rental-apartment sector of the real-estate industry because the legislation limits several homeownership incentives and balances new home-buying incentives with expanded rental housing perks.

Two apartment advocates — the National Multi-Housing Council and the National Apartment Association — applauded the banning of seller-financed down-payment programs, the boost in the minimum down payment for FHA-insured loans, and limiting the tax credit for first-time home buyers to one year. The credit is only available to households below certain income levels, and it must be repaid.

The law also expands and improves the Low-Income Housing Tax Credit program and temporarily increases the tax-exempt private-activity bond cap for multi-family and mortgage-revenue bonds by $11 billion for 2008.

Real-estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

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