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There has been a lot of talk about the Economic Stimulus Act of 2008 that was recently passed. With over 700 pages of documentation and continued revisions, it can be difficult to see through the technical aspect and get to the meat and potatoes of the Act. Beth Wakeley has provided some excellent information to help home buyers and agents understand what is happening and what to expect down the road. Here is a current overview of the Act.

Subject: Conforming Loan Limit

• Changes:Permanently increases the limit and establishes a local area-based system.
• Description and Effective Date:The new limit will be based on 115 percent of the area median home price, but in no case will the limit be more than 150 percent of $417,000, or $625,500, or less than $417,000.

Subject:FHA Loan Limit

• Changes:Increases the percentage for determining local area loan limits; permanently increases the national cap and floor.
• Description and Effective Date:The new limit will be based on 115 percent of the area median home price, but in no case will the limit be more than 150 percent of $417,000, or $625,500, or less than 65 percent of $417,000, or $271,050. Will be effective upon the expiration of the Economic Stimulus Act of 2008, which means the new limits apply to loans endorsed for insurance on or after January 1, 2009.

Subject:Borrower Cash Requirement

• Changes:Increases the borrower’s required contribution
• Description and Effective Date:Requires that the borrower pay 3.5 percent or more of the appraised value of the property.
  The borrower’s contribution may be loaned by a family member, however, the principal obligation of the mortgage and the amount loaned may not exceed the appraised value. The family loan must be secured by a subordinate lien. FHA says they will issue regulatory guidance by October 1 but have not yet determined the effective date. FHA says this provision will not be effective before November 1, 2008.

Subject:Seller-Funded Down Payment Assistance

• Changes:Prohibits seller funding of down payment
• Description and Effective Date:No party of interest can contribute any part of a borrower’s down payment either directly or through a third party.
  Applies to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.

Subject:Maximum Up-front Mortgage Insurance Premium (MIP)

• Changes:Increases Maximum Up-front MIP
• Description and Effective Date:Changes the statutory maximum up-front FHA mortgage insurance premium from 2.25 to 3 percent (2.75 percent for first-time home buyers who receive HUD-approved counseling). This change does not, in and of itself, increase the MIP that FHA charges. It gives FHA the authority to set premiums within a wider range.
  FHA says, due to the moratorium described in the next section, a new, across-the-board, premium will go into effect on October 1, 2008, but has not yet announced the level of the MIP. FHASecure mortgages will have a separate, higher MIP.

Subject:Moratorium on risk-based premiums

• Changes:Temporarily keeps FHA from continuing risk-based MIPs
• Description and Effective Date:Prohibits FHA from implementing a structure of risk-based mortgage insurance premiums beginning on October 1, 2008. FHA implemented a structure of FHA risk-based mortgage insurance premiums on July 14, so it will temporarily have to suspend its use. FHA has not yet set a date for the suspension and has not established an alternative premium structure.
  FHA has stated that a loan will be eligible for a risk-based premium under Mortgagee Letter 2008-16 as long as the mortgagee receives a case number before October 1.

Subject:Condominium Loans

• Changes:Moves virtually all singe family programs under the MMIF
• Description and Effective Date:These changes authorize FHA to insure loans secured by condominiums under the Mutual Mortgage Insurance Fund (MMIF), which should enable FHA to streamline its condo project approval requirements. FHA says they will issue regulatory guidance in 60 days, with an effective date of January 1, 2009.

Subject:Treatment of Up-Front Premiums

• Changes:Limits total of loan and MIP
• Description and Effective Date:Prohibits the maximum amount of the mortgage to be increased by the up-front mortgage insurance premium when the principal obligation equals 100 percent of the property value.

Subject:Pilot Program for Automated Process for Borrowers Without Sufficient Credit History

• Changes:Authorizes Pilot Program
• Description and Effective Date:Requires HUD to develop an automated program to make FHA-insured mortgages available to borrowers who have insufficient credit histories to obtain credit using current underwriting criteria. This pilot is authorized for five years from date of enactment.

Subject:Home Equity Conversion Mortgages

• Changes:Program Authority Expanded
• Description and Effective Date:Authorizes FHA to insure HECMs for home purchase transactions.
  Ties the FHA’s HECM limit nationally to the base conforming loan limit authorized by the Freddie Mac Charter Act, which is currently $417,000. (Controversy has arisen over the new HECM limit – some are arguing that it should be $625,500 nationally and others are saying it is 115 percent of area median up to $625,500. FHA will make the determination shortly.) FHA says it will issue regulatory guidance in 60 days that will be effective November 1, 2008.

Even though this is a boiled down version of the act it can be confusing. Feel free to contact us with your questions on how this might affect your home purchase.