Thursday, July 31, 2008

New Rules and Laws for Homeowners

More and more information about what is really inside the new homeowners' law is coming out. Earlier in the week we posted about the $300 billion allocated to prevent foreclosures. Last week we discussed the GSE bailout giving Fannie Mae and Freddie Mac access to an unlimited amount of taxpayer funds . Today in the Boston Globe we will look at some other parts of the law from an article called Inside Congress's Housing Repair Kit.

Here are some of the other provisions regarding new disclosure requirements -

  • Lenders will have to provide copies of mortgage documents to borrowers at least seven days prior to the loan closing.
  • Mortgage documents must completely disclose the full costs of the loan over its lifetime, including future increases in payments, for subprime or other types of adjustable-rate mortgages.
  • The first provision sounds great. It will give people a chance to review the documents at their leisure. Unfortunately many times the lenders do not have the documents readily that early. For refinances with interest and other provisions it will be hard to have documents that are 100% accurate produced seven days prior. Also are those 7 business days or just a regular week? That will also make a big difference.

    As for the second this also sounds great too - but since adjustable rates adjust we are not sure how the full costs can be disclosed. How can the 120th payment be determined now? We can not find anything more on this provision.

    Some other parts of the article include the following -
    • First-time buyers can receive a $7,500 tax credit for buying a home by next July 1, a provision aimed at recharging sales in slumping markets. Eligibility requirements include that a buyer has not owned a home within the past three years. The credit is effectively a no-interest loan since the taxpayer must pay it back at a rate of $500 a year over 15 years. The credit begins to be phased out for single taxpayers earning $75,000 and ends at $95,000, and for couples earning $150,000 to $170,000, said Linda Goold, lawyer for the National Association of Realtors.
    • Senior citizens will be allowed to tap into larger reverse mortgages. Currently, owners are permitted to receive monthly payments based on between $200,000 and $362,790 of their home's equity, depending on their age, said Tjarko Leifer, managing director of Rex & Co., a San Francisco firm that sells an alternative to reverse mortgages. Residents of high-cost cities such as Boston could benefit under the new law, which raises those limits to between $417,000 and $625,500, he said.
    • Lenders and investors will be barred from starting foreclosure proceedings against veterans until nine months after they return from service, up from three months previously.

    The first one sounds questionable. More government incentive to buy homes. This was the cause of the problem. A tax credit to be paid back over 15 years. Sounds great only for the first year. And what happens when the property is sold or foreclosed after a few years?

    The second one is mixed. Raising the levels of reverse mortgages is great - for those that understand what they are getting into. With honest brokers who make sure that they customers understand the loans this can be very helpful. We have heard about other reverse mortgage provisions that we will address in a future post.

    The last one sounds good but are there any other provisions to help. Are there programs that will help veterans resolve the issues that pushed them into foreclosure? Or is this just a measure to forestall the inevitable and make lawmakers feel good about themselves?

    The new law sounds like a mixed bag so far. But overall it really just reads like a giveaway to the lenders and the GSEs with some feelgood provisions to show the voters.

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