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Provision: Temporary loan-size limit increases.
Limit increases were enacted March 14, 2008, for Federal Housing Administration (FHA) and conforming loans, allowing Fannie Mae and Freddie Mac to buy loans up to 125 percent of an area’s median home price (capped at $729,750). These temporary loan limit increases expire December 31, 2008. However, additional proposed legislation may impact the longevity and amounts of the loan limit increases.
How It May Help Builders:
Higher loan limits are designed to help qualified homeowners and buyers in high-cost markets afford housing by allowing them to secure a single loan with a low interest rate, and take advantage of government loan programs that may help them avoid the high down payment of nonconforming jumbo loans. This move could also encourage more buyers to move up from their existing homes into bigger, newer houses. And, buyers who previously may have been priced out of FHA and conforming loans now may have access to affordable home loan options. Contact your Countrywide regional builder manager or divisional builder manager for additional information on our FHA and “jumbo conforming” loan programs under the temporarily increased limits.
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Provision: Federal outlays, including income-tax rebates and temporary or permanent tax credits.
The economic stimulus package is processing rebates of $600 – $1,200 for approximately 130 million households, and lobbyists are calling for a nationwide tax credit for all home buyers. The proposed Foreclosure Prevention Act of 2008 would provide for a first-time home buyer tax credit of up to $7,500 for individuals who earn less than $70,000 per year or married couples earning less than $140,000. A long-term tax cut is also under consideration.
How It May Help Builders:
Rebates and tax credits put more money into the market with the hopes of stimulating consumer demand, especially among first-time buyers. These incentives may also help make home buying possible for many families. Ultimately, this could lower excess supply and help builders who have been discounting home sale prices.
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Provision: Modernization of the FHA.
Among several suggested measures is one that would reduce the mandatory down payment from the current 3 percent. A proposed Senate bill would drop the requirement to 1.5 percent; a similar House bill would require no money down.1 Fannie Mae took a key step this June when it eliminated the policy that required borrowers purchasing in declining markets to contribute an extra 5 percent down payment.
How It May Help Builders:
FHA modernization may help make loans more accessible to those with credit challenges or little cash, and provide options for borrowers to refinance out of subprime adjustable-rate mortgages and into the stable monthly payment of a fixed-rate home loan. Reform of Fannie Mae and Freddie Mac may also help stabilize dropping home prices.
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Provision: Enhanced liquidity through monetary policy rate-drops.
The Fed dropped the target federal funds rate (currently at 2 percent**) and discount rate (currently at 2.25 percent**) by 75 basis points in March, and another 25 basis points in April.
How It May Help Builders:
If market liquidity is enhanced and, as a result, interest rates on home loans become more affordable, it may help encourage more buyers to jump into the marketplace. Qualified buyers may consider increasing their home price range, and those wanting to trade-up may be encouraged to do so while favorable rates are available
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While some of the immediate benefits of these jumpstart measures are clear, only time will tell if they actually raise housing demand. How can home builders do their part to help? One step is to help educate potential homebuyers on the positive impacts these provisions may have — and why now may be a great time to explore options for buying a new home. For updates on stimulus provisions and home buying market changes, visit the
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Article information current as of 06/05/08.
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“Subprime alternative: FHA reform deal close,” by Jeanne Sahadi, CNNMoney.com, http://money.cnn.com/2008/03/10/news/economy/fha_reform_upcoming/index.htm, posted March 10, 2008, accessed April 1, 2008.
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“Builder Confidence Remains Unchanged in April,” NAHB.com Newsroom, http://www.nahb.org/news_details.aspx?newsID=6962, posted on April 15, 2008, accessed on May 16, 2008.
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