A Historic Day

Today is a big day for the real estate and mortgage world. Early this morning, the House and Senate conference committee agreed to the final text of HR 4173, the Restoring American Financial Stability Act. The final conference text will now go to the full House and Senate for a final vote and then the bill will be off to the President's desk for his signature prior to that all important July 4 deadline.

The legislation is being touted as historic--"the greatest financial overhaul since the great Depression." I agree fully, but I would like to remind everyone that historic does not necessarily mean "good." The bombing of Pearl Harbor, 9/11 and Hitler's invasion of Poland were all historic events but none of them turned out well. In fact, since I have a master's degree in history and I taught history for four years on the junior college level, I can say with some degree of certainty that most genuinely historic events are negative. History books do not have their pages filled with happy stories of content, prosperous people anymore than newspapers do.

Next week we will start breaking down what is in and out of the bill. But today is important for more than just financial reform. In the wee hours of the morning, the Senate voted down a jobs bill to extend unemployment benefits. The tax credit deadline extension which was passed by the House of Representatives was attached to this bill. So was re-funding for the National Flood Insurance Program. Since the bill was expected to pass, we were fairly confident that the tax credit would be extended through September. But with the bill killed this morning, the original June 30 deadline remains.

Many last minute borrowers who were trying to take advantage of the first time homebuyer tax credit by signing their contracts on or before April 30 and closing on or before June 30 have experienced delays in underwriting closing and funding due to new underwriting guidelines, delays caused by dropping rates which caused a glut of refinances during the time that the loans were being underwritten, and delays caused by the bank holders of short sales and foreclosures. Often, banks and relocation companies have their own internal delays so that they can review their documents prior to closing, which can delay a closing as much as 72 hours.

To me, a 90 day extension seemed excessive, because a contract that was signed in April probably is pretty close to being ready to close. Perhaps thirty days would adequately cover the delays caused by last minute problems. But perhaps not--it would depend on what each file needed individually in order to be able to close.

The National Association of Realtors is estimating that up to 25% of home buyers will not be able to take advantage of the tax credit if the deadline is not extended--that is about 180,000 borrowers. Of course, these people can still close when their paperwork is ready, but if they know that they are not going to get the tax credit, will they want to? And if they choose not to, what effect will that have on the housing market, since new contracts are now dipping since the tax credit ended.

It would be interesting to know how many of these borrowers who wanted to take advantage of the tax credit have had their closing delayed because their property requires flood insurance. As you recall, the funding for NFIP expired at the end of May, so we are now 25 days with no new flood policies. Congress has estimated that this lack of flood insurance has kept 1300 homes from closing per day. Now on day 25, that would be 32,500 homes and counting.

Here's an idea--rather than tying these two bills to a bill to extend jobless benefits, why didn't somebody just write a small bill for just these two iteme, take it in, vote on it, and then take it over to the Senate and vote on it there. At least we could have an up or down vote on these issues rather than a prolonged fight over bigger issues ending in defeat on these.

I read one commentary that predicts that Harry Reid will just find another bill to attach these items to and pass it before June 30. But I would not count on that--he would need to move awfully fast to have this finished by Wednesday. Rather, I imagine that a lot of closers and loan officers will be working until midnight June 28, 29, and 30.

Finally, today is historic for one other reason. Mortgage rates are the lowest they have ever been in the history of records. The 15 year mortgage rate today is about 3.875%. Of course, individuals have to meet credit and income guidelines and stricter qualification requirements, but still even to have an opportunity to refinance at a fixed rate under 4% is amazing and noteworthy. And that is the type of history we will want to remember.

The Tax Credit Extension Passed the Senate

On June 16, the Senate passed the first time homebuyer tax credit extension as an amendment to an extension of unemployment benefits. As you know, the first time homebuyer tax credit ended on April 30, but buyers with executed contracts on April 30 had until June 30 to close on those contracts.

Locally, I have been getting emails from title companies promising to stay open until midnight on June 28, 29, and 30 so that buyers will be able to close and fund on their loans. Having attended more closings than I can count, I cannot personally imagine a more potentially stressful experience that trying to close a purchase loan at 10:00 P.M.!

Fortunately, everyone is going to get a reprieve. The Senate extension means that the tax credit still extends only to home buyers who had executed contracts no later than April 30, but those borrowers will now have until September 30 to close. Apparently, enforcing the June 30 deadline would have deprived about 180,000 borrowers of the opportunity to receive the tax credit, as well as depriving thousands of loan officers and escrow officers of a good night's sleep.

With so many new regulations, closing and funding take longer than in the past because the new HUD forms have to be compared to the GFE and the process of HUD approval can take up to 72 hours. That, coupled with the fact that the drop in interest rates at the end of May brought in a glut of refinances which are backing up many underwriters more than 10 business days, means that this extension really is necessary. And when we look at the fact that new purchase contracts have dropped off since April 30, closing these buyers is very important to everyone's bottom line.

But now it looks as though, on this issue at least, we can all rest easy--just in time for the weekend!