March 03, 2009

American Recovery and Investment Act of 2009 - What is in it for me? How will it affect my mortgage?

Whether you were for or against it, the $787 billion American Recovery and Investment Act of 2009 has been signed into law. Now many Americans are wondering how this will affect the housing market and their mortgage. The legislation is designed to assist two groups of homeowners:

Homeowners who are current on their payments, but can not refinance into lower interest mortgages because of the decline in their home’s value.
Homeowners who are at risk of loosing their home.

The Act also provides another $200 billion for Fannie Mae and Freddie Mac to purchase mortgages from financial institutions which will free them up so they may continue to lend. Here are a few examples of the provisions, and how they will assist homeowners:

First Time Homeowner Tax Credit
A tax credit of 10% of the purchase price of a home up to $8,000 is available to first time home buyers that close on the purchase of a home from January 1, 2009 to November 30, 2009. A first time buyer is defined as someone who has not owned a home in the last three years. For more information on this credit, please see the other articles that I have written regarding this specific subject.

FHA Loan Limits
This bill reinstates last year’s loan limits for FHA, Fannie Mae, and Freddie Mac loans with a maximum cap of $729,750 in high-cost areas. By reinstating these higher loan limits, mortgages in high-cost areas will be easier to obtain which will help reduce inventory and improve liquidity in the overall mortgage market.

Simplified Refinancing
Borrowers with less than 20% equity in a conforming loan (guaranteed by Fanny or Freddie) may now refinance up to 95% LTV without purchasing private mortgage insurance (PMI).

Reverse Mortgages
The new bill will raise the reverse mortgage limits to $625,000, 150% of the Freddie Mac loan limit. This will allow older Americans access to more of their home’s equity to help supplement their retirement income of offset investment losses. During the past six months, the federal government has now raised the limits on reverse mortgages twice and reduced and capped origination fees.

Neighborhood Stabilization
A $2 billion fund has been established to help neighborhoods that have been ravaged by foreclosures. These funds can be used to purchase, repair, and resell foreclosed and abandoned properties.

Low Income Housing
States will receive financing for the construction and rehabilitation of low-income housing.

Rural Housing
100% financing will be made available for rural housing loan programs.

Energy Efficiency Benefits
Tax credits for energy-efficient upgrades will be extended through 2010.

Foreclosure Protection
A $75 billion program has been developed to help homeowners “at risk of imminent default” even if they are current on their mortgage payments, as well as those who are already delinquent. It will only apply to mortgages at or below conforming loan limits.

Posted By: Scott Dearnley