The Loan Shark Bailout Bill

…er, Housing & Economic Recovery Act

The US Congress, both House and Senate, finally cleared the Housing and Economic Recovery Act of 2008 today, after nearly a year’s worth of hemming and hawing and slipping goodies into the legalese in the middle of the night. A regular miracle of modern political tug of war and a bill that’s changed its name and focus so many times nobody’s quite sure what’s in it other than a trillion or two to bail out Fannie Mae and Freddie Mac. Having weathered a total of seven [7] Senate cloture votes, President Bush is likely to sign it into law.

No one expects a handout from this bill unless they’re 1. a robber baron, or 2. a loan shark, or 3. a speculator and/or house-flipper (buys real estate only to flip it immediately at inflated price), or 4. an fossil fuels dealer. Thus not surprisingly, the stock market opened low this morning [7-28-08], down more than 134 points at noon. Though Fannie and Freddie were on the upswing on that promise of taxpayer trillions.

But there is up to a $300 billion set-aside aimed to offer 30-year fixed-rate mortgages with government backing to “at-risk” homeowners. But only if the mortgage holder goes ahead and shaves a full 10% off the current appraised value. This clause of the Act is scheduled to go into effect on October 1, and sunsets within a few years. These will be Fannie and Freddie loans with out-of-pocket fees.

If you’re barely keeping up with your mortgage or facing a ballooning rate, it’s a good idea to start now trying to understand this labyrinthine legislation and keep up with news reports on how it’s to be implemented. How housing rescue bill can help you is a good beginning from CNNMoney. What is so far known per the language of the bill:

• Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible.

• Borrowers must prove that they will not be able to keep paying their existing mortgage – and attest that they are not deliberately defaulting just to obtain lower payments.

• Home equity or line of credit on the property must be retired, and will not be available to FHA-backed mortgagees for five years.

Your current lender has to agree to all the terms – including the devaluation. Go ahead and scroll down to the What does it cost? header to see how FHA stands to gain from the arrangement. Why, you’d think this government agency was in it for profit or something! If you ever sell the house for more than loan principal, FHA gets a share of the profits (100% the first year). This should help keep the house-flipper privateers out of the program, though.

Here’s hoping the ‘housing rescue bill’ can actually help out some honest, hard-working people out here in the real world. If you think you’ll qualify, go ahead and contact your mortgage lender and start the discussion. You’ve got nothing to lose, right?

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