The Mortgage Relief Bill

The Mortgage Relief Bill

Congress and President Bush recently signed the Mortgage Relief Bill.  What does the bill do?  How can it help struggling homeowners?  There is quite a debate going on regarding this bill.  Many feel that this is “bailing out” homeowners that signed risky loans.  Some say that this bill will only help the banks.  Putting all of that to the side lets simply look at what this bill does and how it may help you.  I will not get into the ideological and political implications of the bill.

First Time Home Buyers

A first time home buyer (someone who has not owned a home in the last 3 years) will receive a $7,500 credit which will have to be repaid.  Details on this program are not available yet but it will probably act as a silent second.  This would provide a down payment for an FHA loan which only requires 3% down.  This may help to stabilize the housing market in some areas.  The bill also provides an expanded low-income housing tax credit.  All told their will be an unbelievable $15 billion in tax cuts provided through the bill.

Current Homeowners

It is estimated that 2.8 million Americans will lose their home by the end of 2009.  The bill will provide 400,000 of these homeowners with a new mortgage that they can afford.  The idea is to reduce the current loan amount that is owed to the lender.  The Federal Housing Administration will take on a new loan for the homeowner assuming that the old lender will accept a reduced payoff.  This may be much cheaper for lenders that going through the costly foreclosure process.  This will also help to stabilize the housing market.  A homeowner will have to prove that they are currently paying more than 31% of their income towards their mortgage payment to receive this assistance.  They must also be able to prove that they can afford the payments on a reduced loan amount.

Fannie Mae and Freddie Mac

The Mortgage Relief Bill will also open up a line of credit for the government sponsored Fannie Mae and Freddie Mac.  This will be an unlimited but temporary line of credit to lend them emergency money or buy stock in the companies.  This is aimed to relieve investor’s fears.  Fannie Mae and Freddie Mac currently buy or guarantee about half of the country’s mortgage loans.

The bill is meant to stabilize the market by providing more liquidity and saving homes for Americans.  Many people disagree with this idea but it may be necessary.  Stabilizing the market will help all homeowners.  If home values continue to decline it will affect all homeowners, whether they made the right choices when they bought or refinanced their home or not.  If this works, everyone will benefit.