The New Housing Bill gives grants for the purchase and rehabilitate foreclosed and abandoned properties. The subprime tsunami not only has created financial disasters, but has also given rise to suburban blight. Abandoned houses are detriorating and giving many areas the look of a ghost town.

This feature of the New Housing Bill can arrest the deterioration. It also opens up opportunities for fixer-uppers. With properties at record low prices, there is good money to be made. Fixer-uppers, however, have to hold the property until the housing market rises from the subprime depth.

info from FHA website, images from Microsoft Clipart, reconstructed by Ren Garcia

The New Housing Bill authorizes Fannie Mae & Freddie Mac to take on mortgages at higher amounts, from the present cap of $417 thousand to the higher level of $625 thousand. Ostensibly, this will enlarge the market for housing and hopefully pull the housing industry out of the doldrums.

The Bill also authorizes the Treasury to extend an unlimited line of credit to Fannie Mae & Freddie Mac (which already own or back more than $5 trillion in mortgages) and to purchase stocks in these GSEs, if necessary. These will be increasing the debt exposure of Fannie Mae & Freddie Mac. The fervent hope is, with the learnings from the subprime cirsis, better risks will populate the increase.

The fly in the ointment: Fannie Mae & Freddie Mac are backed by taxes –which backing has been increased by the New Housing Bill. If Fannie & Freddie Mac are hit by another financial tsunami, taxpayers will be saddled with the losses.

info from FHA website, images from Microsoft Clipart

The New Housing Bill provides assistance to first-time homebuyers, making their purchases before 1 July 2009. The homebuyers get a tax credit of 10% of the house price, but not exceeding $7500.

The flies in the ointment are:

$7500 is not 10% of the house price in many places in the country

The tax credit has to be repaid 2 years after the purchase. At the tax credit of $7500, the resulting average increase in your tax bill for 15 years will be $500.

info from FHA website, image from Microsoft Clipart

The New Housing Bill has a feature for those whose adjustable mortgages have been bumped up to a rate beyond their paying capability. The Bill gives the homeowner a way to climb out of the hole.

Lenders are encouraged to write down the mortgage by 10% of the property’s value. If the homeowner is able to transfer the mortgage and refinance through a new lender (say, a 30-year fixed mortgage), the resulting payments will be more affordable. This refinanced loan will be insured by the FHA.

The flies in the ointment are:

your current lender has to agree
you can persuade a new lender to take over
only loans arranged between January 2005 and June 2007 are eligible.

To qualify, you have to prove that your current mortgage is beyond your paying capacity and the refinanced loan has become affordable.

info from FHA website, image from Microsoft Clipart