Today, Congress passed the Housing Rescue Bill.

Today, the Senate passed the Housing Rescue bill passed by the House on Wednesday (7/23/08). The main goal of the bill is to allow up to 400,000 homeowners facing foreclosure to refinance to new loans backed by FHA. The bill will allow homeowners who are already behind on the mortgage the ability to refinance to a new more affordable loan if they can demonstrate that they'll be able to make the new payment. The new loan will be for a lower amount, because the current lender will be required to take a loss to offset the home's loss of equity.

Besides helping homeowners, there are a few other things that this bill will do to help the home market:
1) Raise the loan limit for Fannie Mae, Freddie Mac and FHA to 625, 000 (15% higher in high cost areas). These loans are known as conforming loans and come at much lower rates than loans for higher amounts (known as jumbo loans). Raising the limits in effect lowers the interest rates charged for loans within the new limits.
2) Provide 3.9 billion to neighborhoods that they can use to fight blight by buying and fixing up foreclosed properties.
3) Will require lenders to demonstrate to buyers how high their payment can go during the life of the loan.
4) Gives the Treasury unlimited power to lend money to Freddie Mac and Fannie Mae and to buy their stock.
5) Provides tax credits of up to $7500 to first time home buyers.

State of the Housing rescue bill.

As of today, July 5th, 2008, it looks like the Housing Rescue Bill is set to pass both the House and Senate and that President Bush will be willing to sign it (see post from June 10th for more info). It looks like they might add a provision championed by Senator Chris Dodd of Connecticut, which should be particularly helpful for people who have already fallen behind on their payments and for whom foreclosure is imminent.

What's great about it is that not only will it allow people with sub-prime loans that are at risk of having their interest rates resetting to much higher rates, but it will also: 1) be allowed for people who are already behind on their payments and 2) will attempt to get the lenders to accept a payoff of their loan with much less than is owed to them. So let's say you owe $250,000 on house that is worth $180,000. Then, they'll try to refinance your loan at $180,000 and have the prior lender accept the $180,000 as payment in full. Your monthly payment will be much lower because your interest rate will be lower and your loan amount will be much lower.

Things you'll need to keep in mind, it hasn't been approved yet. Also, you'll have to prove that you can make the new payment in order to be accepted. Finally, you will have to be willing to share any future profits that you get once the market improves. I'll keep you posted.