In Plain English “The Housing and Economic Recovery Act of 2008”

The new "The Housing and Economic Recovery Act of 2008" will be effective October 1, 2008 to help simulate the housing market and fight foreclosures. This hub will give a brief description of the act and how it might help each type of homeowners and first time homebuyers.

Help for existing homeowners

If you are behind our payments for your primary resident, you might be eligible for a workout (aka. re-structuring your loan at the taxpayers' expense). Participation in this program is entirely voluntary, so you would need to ask your lender. The homeowners eventually have to pay some of this expense back to the government at the time of sale in a future date, but in the meantime allow them to save their home.

The Act allows lenders to write down loans to current market value plus 10%. For example a $200,000 home is now worth $170,000. The lender has the option to mark down the home to $153,000 (less 10%) and write the new loan for $153,000. When the homeowner decides to sale the home at a later date, the homeowner must split the gains (profits) with the government.

The government is counting on the increase in property value when you sell to help pay back the differences between the original loan amount and the new loan amount. So this is more like a loan from the government to help save your home today, but must be repaid when you sell your home later.

The Act allows Fannie Mae and Freddie Mac to purchase jumbo loans up to 115% of the local median home prices. Jumbo loans are for loans above $417,000. These homeowners will now have access to lower interest rates.

Help for military homeowners

For active military and veterans, the Act requires lenders to wait 9 months start the foreclosures process instead of the current 90 days. There will also be new rules on interest rate adjustments as well. Visit Military.com for additional information.

Help for vacation homeowners

The rules for capital gains taxes are tightening around vacation and rental property. Previously, you have been able to avoid capital gains by living at the vacation property as a primary resident for 2 years before selling it. Now you owe taxes on the capital gain based on the years you did not live there "full-time."

Help for seniors

The maximum fee a bank can charge is 2% of the reverse mortgage amount (1% if the mortgage is above $200,000). Reverse mortgages now have a cap of $6,000 on its fees. This should help seniors with little income, but with equity in their homes. Finally something to help the elderly from being ripped off by huge fees for this type of loans.

Help for first time home buyers

First time home buyers will get a $7,500 credit when they purchase their first home after October 1, 2008. But it is essentially an interest free loan since you pay it back over time in your taxes. But for first time home buyers with little money, this might be icing on the cake to falling home prices. This $7,500 credit is retroactive to homeowners who brought from April 9, 2008 - October 1, 2008. Down payment assistance programs are no longer legal due to the higher rate of foreclosures from homeowners in this group.

Though the "The Housing and Economic Recovery Act of 2008" does not help everyone, it will give temporary relief for a lot of people.

Until next time and thanks for stopping by.