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The end of seller-funded down payment assistance . . .

and other things politicians forgot to tell you about the new housing bill

By John McClellan

                 Well, they finally did it!  On Saturday, July 26, 2008, Congress finally got the

photo op they were looking for:  "Hey, look at us, your Congress at work.  We are working on a Saturday to help all you poor homeowners out of the mess WE got you into."

                Yes, Congress has passed the Housing and Economic Recovery Act of 2008.  Sounds like a grandiose plan, doesn't it?  If we look closely, though, we'll realize that it is all show and no substance.  This plan is supposed to help hundreds of thousands of homeowners to get out of mortgages that they cannot afford, to help Fannie Mae and Freddie Mac to stay solvent, and to overhaul FHA lending.  Let's review some of the major points of the act:

The Bad

• Changes the minimum contribution on an FHA loan from 3% to 3.5%

Did they think they were helping to stimulate the housing market?  What does adding a .5% down payment actually accomplish other than to exclude that many more buyers?

• Eliminates all seller-funded down payment assistance, i.e., no more Nehemiah, Genesis, AmeriDream, etc.

Once again, how is the average borrower helped?  FHA loans are among the most affordable loans available for borrowers.  This provision will effectively eliminate 40 percent to 50 percent of qualified buyers.

• Gives a tax credit of $7,500 for first-time homeowners

Credit?  The last time I received a credit on an account, I did not have to pay for it.  This is not a credit.  It is an interest-free loan, so why even bother giving this so-called tax break?  First-time home buyers will immediately be upside down $7,500 the first year because borrowers will have to repay it.  If Congress were really trying to help first-time home buyers, why not use this tax credit as the down payment assistance they took away?

• Puts a temporary moratorium on FHA's risked-based mortgage insurance premiums

Risked-based pricing is a good thing; it helps HUD to mitigate its risk and gives incentive to borrowers to have better credit while still allowing those borrowers with not-so-perfect credit to qualify.

• Hope for Homeowners Act of 2008

This part of the program is supposed to help homeowners who CANNOT afford their homes to refinance into an FHA loan.  However, there are a few caveats:  The current lender must first write the debt down to 90 percent of current market value.  This provision is voluntary for banks, so they do not have to agree to do this.  If they don't agree to write down the debt, the homeowner does not qualify for the program.  IF they do decide to write the debt down to 90 percent of current market value, the borrower can get a new fixed-rate FHA loan.  Although this is a great deal, there is a problem:  The homeowner now has a partner in his home.  To illustrate, if the homeowner sells during the first year, HUD keeps 90 percent of the equity; and that steps down each year for the next five years, stopping at 50 percent. Therefore, if the homeowner decides to sell his house after 20 years, HUD will be entitled to HALF his equity!  This is all well and good if it saves his home, but I doubt that many homeowners will see any benefit because most lenders will not voluntarily write the debt down.

The Good

• Loan limits will be permanently raised to $417,000, or 115 percent of an area's median home price, which ever is higher, with a cap at $625,500 on all conventional loans.

• FHA loans will be 115 percent of the median home price.  Any temporary increases that were already in effect will be kept in place.
• Licensing and registration will be required on a national basis for all mortgage brokers.

     We are a full 12 months into the mortgage meltdown, which, unfortunately, has lined up with an election year.  The sad truth is that this bill will once again lower the available buyer pool and make it difficult for a majority of Americans to fulfill their dream of home ownership.  Here's a message to Congress:  Let the market take care of itself! Strong banks will survive, and borrowers who made good decisions will be rewarded.

All we can do now is to hope that the politicians have gotten enough photo and mic opportunities and will allow us to get on with fixing our industry.

 It is going to be a longwinter . . . .

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There are many things a home owner can do to increase the value of their home. This can be done on the interior or the exterior of the home, from do-it-yourself for the smaller projects to hiring a contractor for the larger jobs. You can give your home a face lift a little at a time. Most home owners don t have the finances for a complete over haul done all at once. To most people, their home is their largest investment and they would like to keep it in prime condition. Although the price of your home is mostly ...

Where is real estate headed?  Why?

      “Dogs and cats living together . . . mass hysteria.”  Lately this line from the movie Ghost Busters has been resonating in my mind—almost daily.  Bill Murray’s character may have been speaking of the situational state of New York City during the movie, but in my mind his statement reflects the state of the mortgage business and the effects of the Mortgage Meltdown on the overall real estate market—the present market and the future market.

      The government continues ...

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When to buy and when to sell:  A real estate investor’s guide to Market timing 

      Your grandfather always told you, “Location, location, location.” I am here to tell you that it is all about timing in specific locations. Investors have always given a lot of weight to the location of real estate, and this strategy has worked well in the past.  However, to maximize rate of return investors in today’s highly competitive market need to understand that, even though location is a very important part of the puzzle, timing in specific locations is even more ...

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On the show John and Kevin talk about the inventory numbers and pending home sales for February 2008. Based on the preliminary numbers February may be the hotest February on record. John and Kevin predict that the news over the next few weeks about the Austin housing market will be all gloom and doom because the news agencies do not have the most up to date stats. John and Kevin predict a fantastic spring for the Austin housing market

Hundreds of thousands of listeners have been tuning into the wildly popular Mortgage 1370 Radio program for years now.  The program is ...

Listeners like yourself quickly discover that Mortgage 1370 Radio is certainly not an infomercial, but more of a weekly class on how to avoid mortgage and real estate mistakes; because in this realm, even a small mistake is can turn into a disastrous and costly BIG mistake.

In this format, John and Kevin provide a fun, educational, and entertaining approach, sharing hints, tips, and tricks of the trade. Two of the popular segments of the program include “Be a flipper, not a Flopper,” which covers hints on it flipping, when to do it, when not, hidden, costs, and the unseen, hidden reality behind the so-called reality shows; and, and “Crappy Credit Corner,” which counsels and comments on the importance of credit ratings and how to obtain or maintain yours.

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John McClellan and Kevin Bown give thier projections for the year ahead and recap the year behind us. In this episode they talk about the mortgage meltdown and the credit crisis and how it affected the real estate market. John and Kevin go over the correct investment strategies for our current market conditions moving into 2008. John and Kevin have been hosting the Real Estate 101 radio show for more than 3 years now. This weekly radio show is about the in's and outs of real estate investing. They discuss strategies for every market and every level of investor. Listen to them live! Every Sunday from 1-3pm on Talk 1370am...check out our web site at www.mortgage1370.com listen to the show live on the internet.

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Weekly radio show about investing in Real Estate. We discuss strategies on investing in Real estate. Segments on how to be a flipper not a flopper and crappy credit corner. This is from the July 15 2007 show.

Weekly radio show about investing in Real Estate. We discuss strategies on investing in Real estate. Segments on how to be a flipper not a flopper and crappy credit corner. This is from the July 8 2007 show.

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