Federal Housing Legislation: Market Boost Is Here

The ambitious housing relief bill passed in July reflects NAR priorities and holds promise for a market recovery.

September 1, 2008

The massive housing relief bill signed into law by President George W. Bush in late July promises to improve the climate for home sales, thanks to tools that will help lift the pall that’s clouded markets for two years.

The bill’s centerpiece is an expansion of the FHA that will make safe and affordable federally backed mortgage financing available to borrowers with unaffordable subprime loans. With the $300 billion FHA initiative, lenders will be able to get troubled loans off their books—although at a significant write-down in many cases—to give them a chance at a fresh start. NAR backed the FHA refinancing plan.

At the same time, the bill permanently raises the high-cost FHA and conforming loan limit to $625,500, from $417,000. Currently the high-cost limit is $725,750, but that one-year cap, passed to help stimulate the economy, will expire at the end of this year.

Most important for credit markets, the bill authorizes the federal government to shore up secondary mortgage market giants Fannie Mae and Freddie Mac through an expanded line of credit or an equity infusion in the form of purchases of the companies’ stock.

The new authority is aimed at boosting investor confidence in the companies’ ability to weather the downturn, helping them raise capital and maintain investor interest in their mortgage-backed securities.

Along with the financial backstop, the bill beefs up oversight of Fannie and Freddie by creating a new, independent regulator that will have authority for setting the companies’ capital requirements, among other things. The companies’ financial condition is currently overseen by a body that operates out of the U.S. Department of Housing and Urban Development. That regulator’s operations will be folded into the new entity.

To help persuade first-time buyers to enter the housing market, the bill authorizes a $7,500 tax credit for purchases made by July 1, 2009. The credit will apply retroactively to April 9, 2008. NAR has been a prime backer of the credit.

“This legislation will go a long way in helping people buy and keep their homes,” says NAR President Richard F. Gaylord.

Key Dates

Oct. 1, 2008
Effective date for $300 billion FHA refinancing expansion

Dec. 31, 2008
One-year high-cost $729,750 conforming loan limit expires

Jan. 1, 2009
Permanent high-cost $625,500 conforming loan limit becomes effective

April 9, 2008–July 1, 2009
Eligibility window for federal homeownership tax credit for first-time buyers

2008 Tax Year
Standard property tax deduction ($500 individuals, $1,000 joint filers) for taxpayers who don’t itemize returns

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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