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Industry backs payment assistance proposal

July 18, 2005|by JAMES M. WOODARD / Copley News Service

The Zero Down Payment Pilot Program Act of 2005 has been introduced and is now being debated in Congress. Real estate industry leaders strongly support this legislation. Here are a couple of quotes from key leaders.

Michael Petrie, chairman of Mortgage Bankers Association: "While our country currently enjoys record levels of homeownership, the down-payment hurdle is a major obstacle for low- and moderate-income and minority families who can afford the monthly mortgage payments but find it problematic to save for the down payment. We believe in order to truly expand homeownership opportunities and improve housing affordability, we must overcome the down-payment challenge. This program is the appropriate tool for addressing the problem."

David Wilson, president of the National Association of Home Builders, said, "This new legislation would help 50,000 families to achieve homeownership who would otherwise be denied the opportunity. It would continue the long tradition of innovation at the FHA by addressing a primary obstacle preventing many minority and low-income families from becoming homeowners - the lack of funds needed for a down payment."

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The new law would require borrowers to pay a 2.25 percent mortgage insurance premium upfront, compared to the 1.5 percent required for an FHA single-family loan with a 3 percent down payment, and an annual premium of 0.75 percent instead of 0.50 percent for the first five years of the loan, the National Association of Home Builders pointed out. Monthly payments would be slightly higher than for a standard FHA mortgage, and home-buyer counseling would be mandatory for all buyers who participate.

Q: What's the likelihood of home values declining in coming months?

A: A recent report from Fannie Mae indicates an increasing chance of a substantial reduction in home values in certain areas of the country. This is partly because of looser lending standards being practiced by some mortgage lenders.

The report finds that conditions in many parts of the country are a "mirror of past conditions that preceded regional housing busts." Among other things, it cites increases in the number of riskier loans, including ones that allow buyers to delay repaying the principal or that aren't backed by full documentation of the borrower's income and assets.

The study by Fannie Mae shows a loosening of standards for loans included in "private-label" mortgage securities - those backed by Fannie Mae and other major buyers of existing mortgages. The shifts are particularly notable for home-purchase loans to people with blemished credit records. Nearly a quarter (24 percent) of the total value of subprime loans included in private-label securities last year were adjustable rate mortgages with an interest-only payment feature.

Q: What's the status of the so-called RESPA reforms?

A: Finally, definitive action is being taken to update and modernize the Real Estate Settlement Procedures Act, otherwise known as RESPA. This is a legal requirement to implement steps that will lead to more simple and understandable procedures for buying and financing a home. It's being pushed by the Department of Housing and Urban Development.

"Simplifying and improving the way consumers buy and refinance homes in this country will drive our campaign along this road to reform," said HUD Secretary Alphonso Jackson. "There's universal agreement that current regulations can and should be improved to allow even more families to share in the American dream of homeownership."

The next step in developing needed reforms is for HUD to host three roundtables with members of industry and consumer groups. Participation in these sessions is by invitation only. Targeted participants are those individuals and groups that offered an analysis of HUD's previous reform proposals.

The purpose of these sessions is to stimulate a meaningful exchange of ideas among participants over the substance of the new RESPA reform proposals.

"I understand that with so many competing interests, it will be difficult to make everyone happy," said Jackson. "But I promise that before we put pen to paper, we will carefully consider the input from consumers and industry alike."

Q: We're thinking about purchasing a motor home. Will the interest on our loan be deductible as home mortgage interest?

A: Yes, if you qualify. Deductibility is OK if your motor home is used as security for the loan, and if it contains basic sleeping, cooking and toilet facilities, according to the Internal Revenue Service. For more detailed information, direct your questions to your regional IRS office or discuss it with your tax adviser.

Send inquiries to James M. Woodard, Copley News Service, P.O. Box 120190, San Diego, CA 92112-0190. Questions may be used in future columns; personal responses should not be expected.

Copley News Service

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