Industry Update

Fannie Mae and Freddie Mac
Housing Legislation
FDIC-Insured Deposits

How Will Federal Intervention at Fannie Mae and Freddie Mac Affect Homebuyers

On September 7, the federal government stepped in and placed mortgage giants Fannie Mae and Freddie Mac under a government conservatorship, which is similar to bankruptcy reorganization.  There has been and will be no interruption in the home loan process as a result of federal intervention.

While it is too early to know all the potential effects of federal involvement in Fannie Mae and Freddie Mac, mortgage interest rates have already lowered because perceived uncertainty about the fate of the two organizations was keeping rates artificially high.  We also may see Fannie and Freddie roll back some of their recent fee increases and loosen lending requirements—allowing more homebuyers to enter the market.

It is the government’s hope that its involvement will boost confidence in the economy, reduce homebuyer uncertainty, and ultimately increase real estate sales activity.

Fannie Mae was created in 1938 to provide an affordable mortgage option for homebuyers.  Freddie Mac was chartered in 1970 to support further opportunities for affordable homeownership.  Together, the two Government Sponsored Enterprises (GSEs) handle approximately 50 percent of all mortgages made in the U.S.

If you have questions about Fannie Mae, Freddie Mac or current loan products, please contact one of our loan officers.

What the Recent Housing Legislation Means for Homebuyers

On July 30, the President signed into law a major piece of legislation, the Housing and Economic Recovery Act of 2008. The Act is regarded by many as the most significant housing legislation in a generation. It makes permanent many of the changes that were part of the Economic Stimulus Act passed earlier this year, most importantly an increase in loan limits for loans purchased by Fannie Mae or Freddie Mac or insured by the FHA. It also provides a tax incentive for first-time homebuyers and provides financial support for modernization of the FHA.

The legislation contains several provisions of particular importance to homebuyers:

Higher loan limits – Permanently raises loan limits for the FHA and "conforming conventional loans." This is significant because it increases the availability of mortgage financing, at the most favorable terms, for more people. The new loan limits will go into effect on January 1, 2009 after the limits set out in the Economic Stimulus Act expire on December 31, 2008.

FHA Rescue (foreclosure relief) – Authorizes a new FHA "Home for Homeowners Program" to refinance existing borrowers into fixed-rate FHA mortgage products. The program allows lenders to refinance borrowers into an FHA-guaranteed loan that is not to exceed 90 percent of the current appraised value of the home. The lender writes off the remainder of the loan. To qualify, the borrower must have a debt-to-income ratio above 31 percent on the original loan. This program will serve to help people in danger of foreclosure to refinance into a stable and more manageable loan.

Tax Incentives – Establishes a first-time homebuyer tax credit of up to $7,500. The credit will apply to home purchases between April 9, 2008 and June 30, 2009. There are income limits of $75,000 for an individual qualifying as a first-time homebuyer (i.e., someone who has not owned a home in the last three years) and $150,000 for a family. The tax credit must be repaid over 15 years, essentially making it a tax-free loan from the government.

Cash Investment Requirement – The cash investment requirement for FHA transactions will be 3.5 percent. This includes down payment plus select fees associated with the home purchase or refinancing process.

Seller-Funded Down Payment Assistance – Down payment assistant programs involving sellers or third parties will no longer be accepted on FHA loans as of October 1, 2008. However, gift funds from other sources such as family members will still be allowed.

FHA Modernization – The bill provides financial resources for modernizing and streamlining the FHA loan process. Most notably, the bill gives the FHA authority to streamline condominium approval, which should make it much easier to provide FHA loans to buyers of condominium units.

Risk-based Pricing Moratorium – Imposes a moratorium on the use of risk-based pricing by the FHA for one year beginning on October 1, 2008.

Truth in Lending Act (TILA) – Adds new mortgage disclosure requirements, including:

• Disclosures must be delivered seven days prior to loan closing.
• Disclosures must include examples of how payments would change based on rate adjustments and specify the maximum possible payment under the loan terms.
• Consumers must receive early disclosures before paying anything more than a nominal fee that covers the cost of a credit report.

HomeStreet Bank is an FHA-approved lender. Our experienced loan officers are here to help find the right loan for each individual’s needs. To find a loan officer near you, click here.

FDIC-Insured Deposits

The Federal Deposit Insurance Corporation (FDIC) is a federal agency created in 1933 to insure deposits in banks and thrift institutions as well as actively manage the deposit insurance funds. On October 3, 2008, the U.S. Congress passed and the president signed into law legislation that increases the level of federal deposit insurance through the FDIC to $250,000 per depositor. For more information about how this change will affect you, click here.

HomeStreet Bank is an FDIC-insured bank with 87 years of experience protecting the trust of its customers by taking a conservative, long-term approach to doing business. As a result, HomeStreet is financially sound and exceeds the "well capitalized" standard of the FDIC. All of HomeStreet’s branch staff are trained in assessing accounts to ensure customers have the maximum coverage available through the FDIC, including through the CDARS® program. To review your accounts, please contact a branch today. For more information about the FDIC, how the FDIC protects your deposits, or to calculate your insurance coverage visit its web site at www.fdic.gov.

For more information about how we’re doing, review HomeStreet Bank’s quarterly financial statements.

Updated 10/03/08