Barack Obama will be sworn in today as the nation’s 44th president with a green light from Congress to unleash the second half of the $700 billion Troubled Asset Relief Program, and with legislation providing an additional $825 billion jolt to the economy on tap.
Before Obama took the oath of office, lawmakers had introduced a slew of measures in the new year aimed at spurring home purchases and preventing foreclosures. Some of those measures — including tax breaks for first-time homebuyers, and a return to the higher loan limits in place for Fannie Mae, Freddie Mac and FHA during 2008 — are likely to be part of a massive economic stimulus bill.
TARP, round two
The Obama administration moves into the White House with the authority to implement the second half of the $700 billion Toxic Asset Relief Program, or TARP. In a 52-42 vote, the Senate last week shot down a resolution that would have blocked further borrowing to fund the program.
Both the House and Senate would have had to approve their own resolutions to cap TARP borrowing at $350 billion. With the Senate declining to stand in the way, the issue has largely been resolved — although Congress could still place limitations on how the next round of TARP funds is used.
Rep. Barney Frank, D-Mass., has introduced legislation that would require Obama’s Treasury Department to use a combination of steps to prevent foreclosures, which could include a loan guarantee program that would backstop lenders who agree to modify loans and a program to pay down second mortgages that can complicate loan modifications (see story).
Although many lawmakers have been frustrated at the the way TARP funds have been used so far — primarily to prop up banks through preferred stock purchase — Obama was able to persuade Congress to move forward by promising to shift the program’s emphasis and increase oversight.
In a Jan. 15 letter to congressional leaders, Obama’s top economic advisor, Larry Summers, promised that future TARP expenditures will be aimed at increasing lending and driving an economic recovery, with the "maximum degree of accountability and transparency." Summers also committed to setting aside $50 billion to $100 billion in TARP funds for a "sweeping effort" to address foreclosures.
Summers said the incoming administration plans to implement "smart, aggressive policies to reduce the number of preventable foreclosures" by reducing mortgage payments for troubled borrowers, and by strengthening existing housing initiatives like FHA’s "Hope for Homeowners" refinance program.
Summers said the Obama administration remains committed to changing the bankruptcy code to allow judges to forgive mortgage principal — a sore point with the lending industry, which says the so-called "cramdowns" could raise mortgage rates for all borrowers (see story).
Massive stimulus bill
Legislation that’s intended to jumpstart the economy by providing $825 billion in tax cuts and investments in infrastructure like roads and bridges, schools and renewable energy has been introduced in the House.
The American Recovery and Reinvestment Act of 2009 is intended to create (or save) 3 million to 4 million jobs. The bill would provide $275 billion in tax cuts and $550 billion in spending in areas such as increased unemployment benefits for workers and investments in science and technology.
The bill includes several housing-related provisions, including granting the secretary of Housing and Urban Development the authority to return FHA loan limit floors and ceilings in high-cost areas to the higher, temporary limits in place for much of 2008. The bill would give the Federal Housing Finance Agency (FHFA) similar powers, allowing Fannie Mae and Freddie Mac to once again purchase and guarantee loans of up to $729,750 in high-cost areas.
In approving temporary, higher loan limits in the Economic Stimulus Act of 2008, Congress mandated that they be scaled back on Jan. 1. While the $625,500 limits now in place in high-cost areas is greater than the previous $417,000 conforming loan, industry groups like the National Association of Realtors are pushing for a return to the higher limits. Borrowers who require "jumbo" mortgages larger than those eligible for purchase or guarantee by Fannie, Freddie and FHA tend to pay higher rates.
With interest rates on jumbo loans nearly 2 percent higher than conventional conforming loans, NAR says buyers requiring a mortgage at the 2008 limit of $729,750 are facing $942 a month in additional payments, or $338,000 over the life of a 30-year loan. Sales of homes priced at $750,000 or more are down 47 percent from a year ago, NAR says, compared with a 3 percent drop for homes priced under $400,000.
The issue could be resolved in the stimulus bill, but Rep. Gary Miller, D-Calif., has introduced separate legislation, HR 587, that would increase FHA loan limits and the conforming loan limits for Fannie Mae and Freddie Mac during 2009.
In addition to higher loan limits, NAR is pushing for Congress to eliminate the repayment requirement on an existing $7,500 tax credit for first-time homebuyers, extend its life beyond the current July 1, 2009, sunset, and make the credit available to all homebuyers. NAR and other industry groups are also pushing for the federal government to provide subsidies that would bring down mortgage rates to stimulate buyers (see story).
In his own proposal for an economic stimulus package, House Ways and Means Committee Chairman Rep. Charles Rangel, D-N.Y., supports eliminating the repayment requirement for the first-time homebuyer tax credit. But Rangel does not propose to extend the credit through the end of 2009, as requested by NAR, or to allow anyone other than first-time buyers to claim it. In a summary of the programs Rangel would support in a stimulus bill, he said even the more limited proposal for homebuyer tax credits would cost an estimated $2.686 billion over 10 years.
Other housing bills
Other housing-related bills introduced in the new year include HR 230, which would require Fannie Mae and Freddie Mac to help provide fixed-rate mortgages at 4 percent or less by purchasing and securitizing qualified fixed-rate mortgages that meet FHFA underwriting standards. The bill, introduced Jan. 7 by Rep. Dennis Cardoza, D-Calif., is intended to prevent foreclosures and increase the availability of affordable new mortgages.
Rep. Al Green, D-Texas, on Jan. 16 reintroduced legislation that would resurrect seller-funded down-payment assistance programs for FHA-backed loans. The text of Green’s bill, HR 600, was not available at press time. But a previous bill with the same goal had the support of NAR and Financial Services Chairman Rep. Barney Frank, where the bill has been referred (see story).
Green is also the sponsor of HR 476, which would provide $52 million over five years for stepped up nationwide testing and enforcement of housing discrimination laws, as well as education and outreach. The bill would provide $25 million for private, nonprofit organizations to study the causes of housing discrimination and develop pilot projects addressing the problem.
Rep. Paul Kanjorski has reintroduced legislation that would accomplish a goal sought by Realtors: a ban on financial holding companies and national banks from engaging in real estate brokerage or real estate management activities. Kanjorski’s bill, HR 111, has 59 co-sponsors.
A bill that would accelerate the implementation of new rules for lenders, HR 514, was introduced Jan. 14 by Rep. Elton Gallegly, D-Calif. Many aspects of the Federal Reserve’s update of Regulation Z, which spells out steps lenders are expected to take to comply with the Truth in Lending Act, are currently scheduled to take place in October. Changes to Regulation Z include prohibitions against coercion of appraisers, and restrictions on deceptive or misleading advertising (see story).
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