Money in the Wind--No More Seller-Assisted Down Payment Programs

The House of Representatives has voted, with the Senate soon to follow, giving $300 billion in assistance to FNMA and Freddie Mac.
The legislation passed yesterday by the House would authorize Paulson to bail out Fannie and Freddie while placing few restrictions on them. Fannie and Freddie debt totals about $5 trillion, which would cause world-wide catastrophe if they failed, and the projected $25 billion cost to U.S. taxpayers over the next two years may not happen anyway, per the Congressional Budget Office, only a 50% chance, if you want to take comfort in that. Lawmakers said they expected the Senate to approve the measure later this week, and the White House said President George W. Bush would sign it into law.
Included in this is the elimination of seller-assisted down payment programs such as the HART, AmeriDream, and Nehemiah programs. These programs allowed a process where the seller could contribute to a 3rd party non-profit entity funds which were then sent over to the buyer via escrow, who could apply them for his/her down payment. These "seller-assisted" programs are now blamed for the loss of $4.6 billion in FHA's funding reserves, to the current level of $16.4 billion. Traditionally, down payment funds are from the buyer's own sources, but in these particular programs sellers were allowed to help the buyer who had little or no money. When buyers have less money in the deal, they are considered at much higher risk of loan default, and in still current down payment programs, a requirement is for the buyer to have a minimum of 1% of their own funds contributing to the purchase.

The current temporary loan limit of $729,000 would be changed to a permanent level of $625,000 for conventional and FHA loans, and allows a tax refund for first-time homebuyers of up to 10% of the home's purchase price, but no more than $7500, but the refund is basically a tax-free loan which must be paid back over 15 years.

There is much more to this proposal, which will probably be signed into law by President Bush who has dropped his opposition to it, and made effective possibly October 1.

How this bill can help you. Here's some of what homeowners need to know. Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 40% of their gross monthly income on all household debt to be eligible for the program. Click on the article to read more about eligibility for this FHA program which, if passed, will be available through FHA approved lenders.
Please contact me for more information.

Julia Huntsman, Broker Associate, e-PRO®, REALTOR®
All California Brokerage, Inc.

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