President Barack Obama, during a visit to Colorado, today signed into law the controversial $787 billion stimulus bill passed by Congress last week.
The bill, which backers say will save or create 3 million to 4 million jobs through $575 billion in government appropriations and direct spending plus $212 billion in tax cuts, includes several provisions aimed at boosting home sales.
HR 1, the American Recovery and Reinvestment Act of 2009, increases the $7,500 limit on an existing tax credit for first-time homebuyers to $8,000, extends its sunset from July 1 to Dec. 1, and eliminates a requirement to repay the credit. A first-time buyer is defined as someone who hasn’t owned a principal residence in the last three years.
In addition, the bill restores the $729,750 upper loan limits for Fannie Mae and Freddie Mac in high-cost housing markets that was in place during much of 2008. The higher limits — first put in place as a temporary measure included in last year’s economic stimulus bill — were bumped down to $625,500 on Jan. 1 (see story).
This new stimulus also bill restores the floor for FHA loan guarantee programs in "normal" markets to $271,050, and gives Obama’s Secretary of Housing, Shaun Donovan, discretion to allow FHA to back home loans of up to 125 percent of the median home price in high-cost markets, with an upper limit of $729,750.
HR 1 also spells out a previous commitment by the Obama administration to spend at least $50 billion from the second round of the $700 billion Troubled Asset Relief Program (TARP) on foreclosure prevention.
The bill mandates that the money be spent on a loan-modification plan that may involve loan guarantees or credit enhancements, reduced loan principal amounts and interest rates, an extension of loan terms, or any combination of similar methods.
The section of HR 1 addressing foreclosure prevention, dubbed the "Help Families Keep Their Homes Act of 2009," also calls for incentive payments to loan servicers of up to $2,000 for each foreclosure they are able to prevent through a short sale, loan modification, workout, or other loss mitigation plan.
Congressional Democrats are also pushing legislation that would give bankruptcy judges the power to modify the terms of troubled borrowers’ loans — including "cram downs" of principal. The Obama administration supports the change, but reportedly did not want to tackle the issue in the already controversial stimulus bill (see story).
The mortgage lending industry opposes giving bankruptcy judges cram-down powers, saying such involuntary, after-the-fact changes to loan terms will raise the cost of borrowing for all consumers.
The New York Times reported today that Democrats plan to include language modifying the bankruptcy code to permit cram-downs in a spending bill that Congress must pass to keep the government funded.
Obama’s foreclosure-prevention plan is expected to include government subsidies to reduce the interest rates of troubled borrowers’ loans, the Times said, with lenders providing matching contributions.
Lenders including JPMorgan, Bank of America, Citi and Morgan Stanley have reportedly instituted temporary foreclosure moratoriums in anticipation of the plan’s rollout, while Fannie Mae and Freddie Mac continue to delay foreclosures.
President Obama is expected to reveal more details about the plan Wednesday in Phoenix.
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