Sometimes I don’t understand Congress and the government.
Ok, often I don’t understand them”¦
Case in point:
The flurry of activity in the hollowed halls of the U.S. Capitol building over the last couple of months to get the first-time homebuyer’s tax credit extended (and expanded beyond first-time buyers) was touted as necessary to help people buy homes and turn around the ailing real estate market ”“ and the U.S. economy. Billions of dollars have been spent on this program, with billions more to come.
Think your elected officials don’t believe the tax credit helps the housing market, and hence the economy? In their own words:
“Already, the homebuyer’s tax credit has helped to stabilize the housing market. . .This extension and expansion will help our economy grow and allow many more middle-class families to realize the American Dream.” ”“ Senator Chris Dodd (source)
“The key to returning stability to the economy lies within the housing market, and we have crafted a meaningful credit that will create a strong foundation for future growth and make a measurable difference over the next seven months in our economy.” ”“ Senator Johnny Isakson (source)
“The bill also a places a down payment on the future of our middle-class because it extends, for the first-time homebuyer, a tax credit helping more Americans purchase homes and making it a little easier for families to move into a new house and keep a roof over their heads. This initiative has already been successful. We’ve seen the positive impact ”” the steadier foundation in our housing market. Most significantly, we’ve watched a new generation of Americans start living out their dream of homeownership and economic security.” ”“ Speaker of the House Nancy Pelosi (source)
I happen to think they are wrong, but hey, they are as entitled to their opinion as I am to mine.
OK, so the folks in Washington are looking out for us, passing laws they feel will spur the housing market toward recovery. Good for them. While it may seem at times their primary job is to get re-elected, let’s give them the benefit of the doubt and say they have the American public’s best interest in mind.
Why then this recent about face?
Enter H.R. 3706 ”“ The FHA Taxpayer Protection Act of 2009. This bill, referred to the House Committee on Financial Services on Oct 1, would require borrowers with FHA insured mortgages to make down payments of at least 5% and would prohibit rolling closing costs into the loan.
Currently the minimum FHA down payment is 3.5% of the purchase price and closing costs can be rolled into an FHA loan.
While it is by no means statistically significant, I can tell you the vast majority of FHA buyers I’ve worked with can barely scrape together the 3.5% down payment. Bump that to 5%, and add in the fact they would need a few thousand more to cover closing costs and this bill, if passed, would have to reduce the number of people able to purchase a home with an FHA loan.
But wait, there’s more”¦
In addition to HR 3706 (you’ve got to love the name ”“ Taxpayer Protection Act), the Secretary of Housing & Urban Development Shaun Donovan on Wednesday outlined further plans by the Administration to make sure FHA home buyers had “more skin in the game” and to shore up the FHA’s dwindling reserves.
The highlights of the FHA policy proposal:
- Reducing the maximum allowable seller concessions from it’s current 6% of sales price to 3%.
- Raising the minimum FICO score (“credit score”) required to qualify for an FHA loan.
- Increasing the up-front cash that a borrower has to bring to the table in an FHA backed loan.
- Investigating an increase in the up-front mortgage insurance premium a buyer is required to pay.
- Asking Congress to raise the annual mortgage premium a FHA buyer has to pay.
According to the Firstxtra company most of these changes the FHA can make on their own with no additional authority or legislation required. Donovan said they will provide detail and public guidance for these changes by the end of January.
On one hand we’ve got the government passing a tax credit that, in their opinion ”“ as well as that of the National Association of Realtors (NAR) ”“ will do wonders for the housing market and overall economy.
On the other hand, we’ve got the FHA making significant changes on the ability to qualify for, and increasing the cost of securing an FHA loan. And there is also a bill in the House to pile on even more costs to FHA buyers. This for a loan program that, according to the NAR, 50% of all first-time buyers used to buy a home in 2008.
Maybe it’s just me, but these two actions seems to be diametrically opposed to each other. Is the fed attempting to “rob Peter to pay Paul”, do they even think about the consequences of actions and legislation on other programs they have enacted, or are they just completely clueless?
I don’t get the government. . .