EDITOR’S NOTE: The Point of the Housing Act

By Keat Foong Executive Editor The big news in recent weeks is the passage of the Housing and Economic Recovery Act of 2008, described to be the most significant housing legislation in a generation.  The government effort to calm the financial markets with regards to Fannie Mae and Freddie Mac is surely a welcomed development for the multifamily industry, which is relying now more than ever on these two agencies to supply it with debt capital. The last thing we want is for this twin engine of multifamily financing to vanish into thin air, or for bond investors to lose all confidence and the agencies’ loan pricing to go haywire. In any case, make no mistake, by attempting to shore up the single-family and multi-family residential markets and allowing the government to try to rescue Fannie Mae and Freddie Mac if necessary, the legislation is also meant to benefit, ultimately, the economy. And at this point, as we await with abated breath the further direction of the national economy, we know that a sound economy is of benefit all round—not least of all to multifamily investment and financing. National Association of Home Builders (NAHB) President Sandy Dunn indicated she is optimistic the Act may well succeed in—yes—turning around the economy, no less. Singling out the law’s $7,500 first-time homebuyer tax credit (which also applies to condominiums), Dunn said that Congress enacted a similar tax credit, of $2,000, in 1975 for homebuyers. In nine months, she said, “buyers flocked to the market.” That tax credit helped clear the then-record number of unsold inventory and it was an “important tool” to help “dig” the economy out of the recession at that time, said Dunn. “In short, the tax credit worked before and we expect similar success in the year ahead,” she said. So, just as commentators waited to assess the extent to which the recent $600 tax rebate boosted consumer spending, one development we can watch out for as we head into the near-term future is what general economic effects the housing bill will have.   For your reference, here are some of the housing bill’s provisions of relevance to the industry: • a $7,500 temporary first-time homebuyer tax credit to stimulate homebuying and bring down excess inventory across the country (the tax credit has to be repaid by the homebuyer, but it is interest free); • a $300 billion plan to help refinance the loans of as many as 400,000 homebuyers by providing FHA-insured mortgages to distressed borrowers under the voluntary program; • providing authority to the Treasury to shore up Fannie Mae and Freddie Mac if necessary, and the creation of an independent regulator to oversee the GSEs; • a permanent national rental housing trust fund dedicated to the production, preservation, rehab and operation of rental housing targeted mostly to very-low- to low-income households earning 30 to 50 percent of area median income; • $4 billion in emergency neighborhood stabilization funding for the bulk purchase and rehabilitation of foreclosed homes in targeted areas;  • An increase in the housing tax credit cap in 2008 and 2009 by 20 cents in large population states and 10 percent for small state set-asides, and various important provisions for the modernization of the program;  • an additional $11 billion in tax-exempt bonds in 2008 for the benefit of first-time home buyers and construction of low-income rental housing for the issuance    To comment on this article, e-mail [email protected]