What the new housing law means for you
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Down payment assistance programs took advantage of a loophole in the way the FHA treats down payments. To get an
FHA-insured mortgage, the homeowner has to make a down payment of at least 3 percent. Homeowners don't have to save even that much;
the 3 percent can come as a gift from family members or nonprofit organizations.
Regulations don't allow the home seller to provide the down payment money. That's where down payment assistance
programs come in. They are nonprofits. That allows the seller to give the 3 percent down payment money to Nehemiah or AmeriDream,
and then Nehemiah or AmeriDream can turn around and "give" the down payment to the homebuyer as a "donation."
Fannie Mae and Freddie Mac don't allow sellers to indirectly give down payments to buyers. But the FHA has allowed
this type of transaction for years. The FHA has long complained that down payment assistance programs artificially inflate house prices,
and that loans using down payment assistance are more likely to default. But prominent congressional democrats have protected the down
payment assistance programs on the grounds that they allow many minority families to become first-time homebuyers.
House Democrats wanted to keep the loophole open, and Senate leaders wanted to close it. With this law, the Senate won.
Property tax deductions for all homeowners
Under current law, you can deduct your property taxes from federal income tax -- but only if you itemize deductions on Schedule A. That
leaves out people who don't have enough deductions to warrant filling out Schedule A. They have to take the standard deduction -- and
that means they can't deduct their property taxes.
The housing law changes that. For homeowners who pay
property taxes, it increases the standard deduction by $500 for
single filers and $1,000 for couples filing jointly. This will be
a boon to people, such as retirees, who own their houses outright,
and therefore don't pay any mortgage interest, so they can't itemize.
You can't increase the standard deduction by more than the property-tax bill. So if you're married filing jointly and
you pay $800 in property taxes, you get an $800 deduction, not a $1,000 deduction.
Loan limits extended permanently
There are maximum amounts for loans that the FHA will insure, and that Fannie Mae and Freddie Mac will guarantee. Those limits were raised
temporarily this year. The new law raises limits permanently.
For FHA-insured mortgages, the new limit will be 115 percent of the median home price in that area, up to $625,500. That
provision will affect loan limits in higher-cost areas. In lower-cost areas, the current FHA limits won't decrease.
For conforming mortgages -- those eligible to be bought by Fannie Mae and Freddie Mac -- the conforming limit will remain
at least $417,000 for a single-family home. It can be higher than that. Starting next year, the new limit is either $417,000 or 115 percent
of the area's median home price, whichever is higher -- up to $625,500. After that, the limits go up or down according to a price index.
More regulations on reverse mortgages
A reverse mortgage is an advance against home equity. It's for homeowners age 62 or older, and the reverse mortgage doesn't have to be
repaid until the borrowers die or move out.
Because reverse mortgages are for elderly borrowers, there is concern that dishonest lenders and brokers take advantage
of borrowers. Borrowers are required to get counseling first, to learn the pros and cons of reverse mortgages. The law will result in
strengthened qualifications for counselors.
The law bars insurance salesmen from originating reverse mortgages and prohibits originators from requiring homeowners to
buy annuities or insurance products. (There's one big exception: The FHA insures reverse mortgages, and borrowers will buy that coverage.)
Finally, the law limits origination fees on reverse mortgages. They can't exceed 2 percent of a reverse mortgage of up to
$200,000. For a reverse mortgage amount above that, the limit is $4,000, plus 1 percent of the loan amount above $200,000. Origination fees
can't exceed $6,000 in any case. In future years, this upper limit is indexed to inflation.
Manufactured housing
FHA-insured loans for manufactured houses are limited to a maximum of $48,000 -- a limit that has been in effect since 1992. That limit finally will be increased to about $70,000 and will be indexed to inflation. These are the limits for loans in which the borrower is buying only the manufactured home and not the land under it.
According to the Manufactured Housing Institute, the raised limit will make a big difference to thousands of families. Under the $48,000 limit, a lot of families can afford only single-section homes. The increased limit will allow more people to buy double-section homes -- what are colloquially known as double-wides.
The law directs Fannie Mae and Freddie Mac to come up with new products and flexible underwriting standards for manufactured houses.
Veterans
Service members returning from active duty abroad will be given
breaks, effective immediately now that the bill has been signed
into law.
Some protections apply to service members whose military obligations affect their ability to repay debts -- primarily, reservists and members of the National Guard who are called to active duty. They have to leave their jobs and, in many cases, take pay cuts.
For these service members, there are protections having to do with foreclosures and interest rates. If a service member had a mortgage before entering active duty, a lender can't start foreclosure proceedings until nine months after the service member returns from active duty. Formerly, the protection period was 90 days.
Also, when someone with a mortgage is called up to active duty, the interest rates on all previously existing debt are capped at 6 percent. That goes for mortgages -- and for home loans, that 6 percent cap extends until one year after the service member returns from active duty.
The Defense Department will be required to provide foreclosure-prevention counseling upon request to service members who are returning from active duty abroad.
Miscellaneous
Other provisions of the law:
- It will establish an Office of Housing Counseling, which coordinate all federal housing counseling functions, as well as produce booklets
that will be given to people applying for mortgages.
- It will require licensing and registration of all mortgage brokers. Several states have begun to license mortgage brokers and share the
information through the Conference of State Bank Supervisors; this law extends that initiative nationally.
- It won't ask questions about tornadoes. An earlier version of the bill would have commissioned a study into how to "mitigate the risks
to manufactured housing residents and communities resulting from tornados." The inquiry into this head-scratcher will have to wait for
another bill; it was deleted in the final version that passed into law.
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