Senate Passes Housing Bill

MBA (7/14/2008 ) Mechem, John; Sorohan, Mike
The Senate on Friday passed H.R. 3221, the Foreclosure Prevention Act of 2008. The 63-5 vote came following weeks of debate. The bill, guided through the Senate by Banking Committee Chairman Christopher Dodd, D-Conn., and Richard Shelby, R-Ala., overcame several procedural disputes and a threat of a veto from President Bush.
Mortgage Bankers Association Chairman Kieran Quinn, CMB, praised the Senate for its action and stressed the importance of the bill in addressing ongoing instability in the housing and mortgage markets.

"Recognizing that crucial reforms are needed to stabilize and set the course for a recovery of the housing market, Chairman Dodd and Ranking Member Shelby have set partisanship aside and created consensus within their parties," Quinn said. "I want to thank them, as well as the Senate leaders, for their hard work in getting this bill passed. This bill, if it becomes law, has the potential to be the most important piece of housing legislation in more than a decade."

The bill now goes back to the House, which is expected to debate several provisions not previously considered in its bill. House Financial Services Committee Chairman Barney Frank, D-Mass., indicated that the House could bring the bill to the floor for a vote as soon as this week.

Key provisions in the bill include:

• FHA Modernization. Authorizes an appropriation to improve technology, processes, program performance, eliminate fraud and provide appropriate staffing. Effective January 1, 2009, it also increases the FHA loan limits to 110 percent of the local median home price (not to exceed $625,000), establishes a 12-month stay on FHA's proposal for risk-based premiums, sets the down payment requirement at 3.5 percent and prohibits seller-funded down payment assistance (both direct or through a third party).

• GSE Oversight Reform. Creates a new regulator (five year term, appointed by the President, confirmed by the Senate) with oversight authority similar to the other bank regulators, establishes a new affordable housing fund and capital magnet fund to be funded by a 4.2 basis point fee on all new loans and raises the conforming loan limit to the local median home price, not to exceed $625,500 (effective January 1, 2009).

• FHA Rescue. Creates a voluntary program for lenders to write down the loan balance in exchange for an FHA guaranteed loan not to exceed 90 percent of the newly appraised value of home. The lender would pay a 3 percent FHA loan origination fee. To qualify, the borrower must have a debt-to-income ratio above 31 percent on the original loan. The program caps at $300 billion.

• Tax Incentives. Creates an $8,000 tax refund for first-time home buyers, expands the volume cap for the low income housing tax credit, allows for tax-exempt treatment of bonds guaranteed by the Federal Home Loan Banks. Also provides for the use of low-income housing tax credits against the Alternative Minimum Tax, which MBA said should expand the investor base for this key generator of affordable rental housing production.

• Truth In Lending Act Reform. Requires TILA disclosures to be delivered seven days prior to loan origination, requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms and mandates that the consumer receive the disclosures before paying anything more than a nominal fee that covers the cost of a credit report.

• Empowering States. Raises the caps on tax-free bonds that state housing finance agencies may use to help at-risk homeowners by $11 billion and appropriates $4 billion for states to purchase and renovate abandoned and foreclosed properties.

• Licensing. Encourages state officials to create a national licensing system for residential loan originators, allows HUD to create their own national licensing system if the states fail, establishes minimum qualifications for all loan originators and requires federal regulators to create a registry for banks and thrift employees who originate loans.

"FHA modernization and GSE oversight reform have topped MBA's legislative agenda for the better part of the last decade," Quinn said. "Fannie Mae and Freddie Mac play a crucial role in the smooth operation of the mortgage finance system, impacting about 70 percent of all home mortgages and affording the opportunity of homeownership to millions of Americans. We are confident that the GSEs, as shareholder-owned companies, and regulatory authorities will ensure they continue to play that role, and this bill will strengthen their hand."

Quinn said he hoped the House and Senate work quickly with each other to get a bill to Bush before Congress adjourns for its August recess.

“It is unfortunate that it took a crisis of this magnitude to bring us to the point where we can reach broad agreement on these issues, but have no doubt, a more nimble and modern FHA along with stronger GSE oversight are crucial to addressing the issues that are currently affecting the mortgage and housing markets."