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Well, it took almost 3 months, but Congress finally passed the bill today, on older version of which was  passed by the House in May, after some considerable back and forth between the Senate and the House.  The bill is HR 3221 (pdf), titled: “Housing and Economic Recovery Act of 2008”.

The entire bill is over 600 pages long.  The table of contents is 7 pages.  And technically, this is a bill that began its life over a year ago.  Sponsored by none other than Nancy Pelosi.  And apparently Bush is planning to sign.

He should not.

Touted by most of the media is the section that provides up to a $7,500 tax credit is 1,800 words.  And the  media manage to mention it without explaining that the taxpayer that gets the credit is then taxed (called a “recapture”) an additional 6-2/3% of the amount of the original credit for the next 15 years.  Yeah, that’s a 0% loan, not a tax credit.  As far as I know, there is no precedent for repaying a legitimate tax credit, so this is unique and is probably going to take a LOT of people by surprise.  And not today, not even next year, but you watch in the Spring of 2010 when people actually have to start paying this thing back… an extra $500 in tax that they were not expecting.  Keep your eyes on the shells and tell me where the pea is.

And 5 or 10 years from now when Congress wants to make another sweeping change to the system, these recaptures are going to create more complexity.  And don’t even get me started on the impact of ever getting the Fair Tax passed now.

So, briefly, here’s what the bill does:

  1. Establishes a new agency called the Federal Housing Finance Agency.  Yeah, that’s right, yet another agency.  The section is referred to as “Improvement of Safety and Soundness Supervision”.
  2. Specifies loan limits, capitalization levels, reporting, availability of some data to the public domain, housing goals.
  3. Enforcement requirements, actions, penalties, subpoena authority.
  4. Committees, directors, etc. for the new agency.
  5. Abolishment of the OFHEO (Office of Federal Housing Enterprise Oversight, a sub-agency of HUD), and transfer of everything it does and owns to the new FHFA.
  6. Abolishment of the Federal Housing Finance Board and transfer of everything it does and owns to the new FHFA.
  7. Some attempts to reduce paperwork (always appreciated).
  8. What appears to be sweeping changes in voucher and tax incentive programs.
  9. Extending the length of time some programs such as PHA project-based assistance.
  10. Updates to Federal Home Loan Bank code.
  11. Establishment of HOPE for Homeowners Program.
  12. A bunch of rule changes to make it easier for homeowners to avoid foreclosure.  Interestingly, this section includes an “Emergency Declaration”, that appears to allow Congress to break it’s budgetary rules to get this bill passed.  Someone a lot smarter than me is going to have to explain where in this part of the bill there would be substantial costs.
  13. Special conditions for manufactured homes.
  14. Emergency assistance for foreclosed and abandoned homes.
  15. Counseling services.
  16. For those of us who hate all the papers we already have to sign to close a mortgage, this disclosure is now added: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.'” Unbelievable.
  17. Servicemembers and Veterans get some special considerations, for which I cannot possibly disapprove.  As far as I’m concerned, we owe these folks a free and clear home.
  18. Adding $30,000,000 to the McKinney-Vento Homeless Assistance Act (financing programs for Homeless Assisstance).
  19. Changes to REIT rules.

Trust me, that was brief.

I’m going to admit that the Revenue Provisions section at the end of the bill is somewhat confusing to me, especially the “Bonus Depreciation” section.

Oh yeah, and the bill also encourages “energy efficient mortgages”, that is, mortgages on homes with energy efficient features and/or improvements.

I’ve skipped a LOT of little details that seem to amount to tweaks (some small, some large) to the system, or to adjustments required to realign the agency responsibilities or other administrative issues.

And this is an interesting item, a section titled: Secure and Fair Enforcement for Mortgage Licensing Act of 2008. The first four word’s initials spell “SAFE”.  Nice.  It states:

In order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud, the States, through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, are hereby encouraged to establish a Nationwide Mortgage Licensing System and Registry for the residential mortgage industry that accomplishes all of the following objectives:

  1. Provides uniform license applications and reporting requirements for State-licensed loan originators.
  2. Provides a comprehensive licensing and supervisory database.
  3. Aggregates and improves the flow of information to and between regulators.
  4. Provides increased accountability and tracking of loan originators.
  5. Streamlines the licensing process and reduces the regulatory burden.
  6. Enhances consumer protections and supports anti-fraud measures.
  7. Provides consumers with easily accessible information, offered at no charge, utilizing electronic media, including the Internet, regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, loan originators.
  8. Establishes a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer.
  9. Facilitates responsible behavior in the subprime mortgage market place and provides comprehensive training and examination requirements related to subprime mortgage lending.
  10. Facilitates the collection and disbursement of consumer complaints on behalf of State and Federal mortgage regulators.

So, the bill attempts to modernize some of the technology, some of the dollar values, and elevate the accountability of the Financing arm of HUD.  Plus hand out some money.

This is going to cost quite a bit.

Maybe some of it is needed.  I doubt Bush really understands all of the implications of the bill, but then, I know I don’t either.  It would be interesting to hear some feedback from someone that is well versed in the law.

Of all the content I see here, the $7,500 tax credit (text of this section here) is the most disturbing.

  1. It will cost us money, both in interest expense to disperse it (since the pay back is interest free) and and the conditions that appear to allow for reduction of the repayment.  Such as if you sell the property and the gain is less than the amount still owed to the government, you only have to repay the amount of the gain.  Other exceptions to repayment include death and involuntary conversion.
  2. It will promote the same kind of over-extentions by homebuyers that led to the mess we’re in to begin with.  Homebuyers will either convince themselves or be convinced by realtors or bankers that they can borrow up to $7,500 more than they really should because they’ll get it back on their tax return.  Without telling them about the $500 per year tax hit.
  3. It will create substantial frustration in 2010 when people go to pay their 2009 taxes, the first year they would experience the “recapture”.  Because they won’t understand it, and it will increase their tax burder by $500.  That can be enough to create a huge backlash and economic impact that may force Congress to give out more money.  Just what we need.
  4. The IRS is bound to mess up the forms and the rules.  Tax preparers may be ill-prepared to handle this.  Tax payers will be confused.  Chaos will grow and cause Congress to have to create yet another agency to oversee tax preparation for homeowners that used this tax credit.  (okay, maybe not, but I never thought I’d see this kind of credit before either).

I don’t want to see people suffer.  It’s hard to question all of this bill as there are probably some very appropriate adjustments to caps and other details to accomodate inflation and other changes in the market, technologies, etc since 1992.

But bad law is still bad law.  Fix the big problems, the $7,500 tax credit and the new agency, and I might be willing to work with this.  Helping the people that are hurting right now by no fault of their own is all well and good.  Helping the people that were pushing the envelope or simply gaming the system and lost, that’s just stupid.  And encouraging more first-time homebuyers to enter the market when they’re really not ready is just wrong.

My previous comments (in May), cover some of my thoughts here in more detail, but we just have to stop coddling people.  Please.

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