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Housing Legislation Q&A;
One of the questions that I am asked frequently by constituents is what is being done to alleviate the on-going foreclosure crisis. Many who ask these questions have been directly impacted by foreclosures, or fear what a potential foreclosure would mean to themselves or their family.
Whether or not you have been directly impacted by a foreclosure, this crisis continues to have a debilitating effect on our economy, which has an effect on us all. An important step in getting our economy on track was taken when Congress approved, and the President signed into law, landmark Housing legislation which will help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help communities rehabilitate abandoned properties.
This legislation took several months to craft, was passed back and fourth between the House and Senate numerous times, and the finished product was more than 680 pages. While you may have seen news reports about the passage this housing bill, it remains difficult to get a comprehensive overview of what the housing bill really means to you, your family, and your community. Below is a question and answer guide for those who may have questions about the benefits of the bill. I hope it is a helpful resource to you and if you have any questions about foreclosures, please do not hesitate to contact my Lowell office at 978-459-0101.
Sincerely,
Niki Tsongas
Q: How will the new law help struggling homeowners keep their homes?
A: An estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages. The program offers government insurance to encourage lenders to voluntarily reduce mortgages for at-risk homeowners.
Q: When will the program begin?
A: The program will begin on October 1, 2008 and end on September 30, 2011. Homeowners currently in danger of losing their homes should not wait to contact their loan servicers and should begin applying for federally insured mortgages now.
Q: How will the rescue program keep homeowners at risk of foreclosure in their homes and how can homeowners participate in the program?
A: Homeowners need to contact a lender approved by the Federal Housing Administration (FHA). The FHA-approved lender will determine the size of a loan that a borrower can reasonably repay and that meets the requirements of the program. If the current lender or mortgage holder agrees to reduce the value of a home loan to below the current appraised value of the home, reduce monthly payments and lower interest rates until the loans are truly affordable, the FHA lender will pay off the discounted existing mortgage and make a new, now-affordable loan.
A: No. The program is completely voluntary for lenders, investors, loan servicers, and borrowers.
Q: Who is a HUD approved Counselor?
A: Beware of foreclosure prevention companies and scams. You don't need to pay for help. Foreclosure prevention counseling accessible thru The HOPE line and the above listed Counseling Offices is FREE OF CHARGE. To avoid scams, be sure to contact these HUD approved regional nonprofit counseling offices.
Home Preservation Center
450 Merrimack St.
Lowell, MA 01854
978-970-0600
168 Newbury St.
Lawrence, MA 01841
978-685-3115
599 Canal St.,
5th Floor West.
Lawrence, MA 01840.
978-685-6274
1-800-583-5337
Q: Who is eligible?
A: To be eligible to participate in this program:
• Only loans for the borrower’s principal residence are eligible. Loans on second homes, vacation homes, and investment properties are not eligible.
• The borrower must meet traditional loan underwriting standards and demonstrate that he or she will be able to make payments on a new more affordable loan.
• The borrower must certify that he or she has not intentionally defaulted on an existing mortgage, and did not obtain the existing loan fraudulently.
• The borrower must not have been convicted of fraud.
A: No. FHA encourages homeowners facing interest rate reset to refinance before they fall behind. But even if you do fall behind, you may be eligible.
Q: How far behind can you be on a mortgage to qualify? What about more than 90 days?
A: There isn't a limit on how far behind you can be on your mortgage or how many payments you've missed. Whether you're current, one month behind or multiple payments behind, the amount you can refinance will depend on the value of your property and how much you owe and if the lender, or another eligible source, is willing to take back a second mortgage to help bridge the gap between what is owed and your home's value.
A: It is possible that FHASecure may help homeowners already in foreclosure but each situation is unique and depends upon the value of your home and how much you owe. Homeowner facing foreclosure are encouraged to call a NeighborWorks foreclosure counseling office.
Q: Who are lenders approved by the Federal Housing Administration (FHA)?
A: Search online for your nearest FHA-approved lender or for more information phone
1-800-CALL-FHA (1-800-225-5342).
A: Under the new law, lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
Q: What is the Home Buyer Tax Credit?
A: This new law provides a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years). The tax credit is retroactive to home purchases after April 9, 2008, and before July 1, 2009.
A: Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
Q: Is this package a bailout for speculators, homeowners, investors, and lenders?
A: No. The bill is narrowly tailored to keep families in their homes. Every participant must make sacrifices but crisis is averted. In order to participate, lenders must first agree to significant losses on the reduced loans in exchange for saving themselves the cost of foreclosure. To compensate for the cost of insuring these new FHA loans and to prevent unscrupulous borrowers from “flipping” at taxpayer expense, the government keeps a portion of the home's equity and future profits from sale. Home-owners lose equity and a share of a future sale but get to keep their homes and begin to improve their credit. Furthermore, no speculators or investors are allowed to participate, only borrowers living in a home at risk of foreclosure, and FHA fees for the insurance are higher than “regular” FHA loans, acknowledging the higher risk posed by these borrowers.
A: Many homeowners facing foreclosure were misled, were deceived, or were in other ways the victims of unfair lending practices. Everybody—homeowners, lenders, neighbors, our entire economy—is worse off when a foreclosure occurs instead of a prudent refinancing. The housing package takes action to prevent future abuses by establishing a nationwide loan originator licensing and registration system to set minimum standards for all residential mortgage brokers and lenders and strengthening mortgage disclosure requirements to help ensure that borrowers understand their mortgage loan terms. The law also increases government oversight of Fannie Mae, Freddie Mac, and other participants in the housing bubble.
Q: How will this law make housing more affordable?
A: The law:
• Gives states $11 billion of additional tax-exempt bond authority in 2008 that they can use to refinance subprime loans, make loans to first-time homebuyers and to finance the building of affordable rental housing
• Raises conforming loan limits for the FHA, Fannie Mae and Freddie Mac to $625,500. Because of the high cost of housing in Massachusetts, a number of the state’s residents were previously shut out from these programs. Raising these loan limits will lead to lower interest rates on some loans, greater refinancing opportunities, and enable more borrowers in high cost areas to avoid the type of nontraditional and frequently abusive loans that led to the current crisis.
• Provides couples using the standard deduction with up to an additional $1,000 deduction for property taxes ($500 for individuals)
• Creates a new permanent affordable housing trust fund—financed by Fannie Mae and Freddie Mac—to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas
• Provides a temporary increase in the Low-Income Housing Tax Credit to help spur new options for families seeking affordable housing alternatives
A: Everyone pays when there are large numbers of foreclosures in a neighborhood, because vacant homes result in higher crime, declines in home values, decreased local revenues for schools, fire, police, and other essential community services, and increased demands on fire and police resources. The law strengthens neighborhoods hit hardest by the foreclosure crisis by providing $3.92 billion in Community Development Block Grants to states and localities for the purchase and rehabilitation of owner-vacated, foreclosed homes.
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