Senate Passes Amendment to Restore $729,750

Thursday the Senate approved an amendment to a spending bill which would restore the $729,750 maximum loan limit on government backed mortgages for two more years. In addition to increasing the ceiling, which dropped to $625,500 on October 1, the Senate amendment would also restore through 2013 the formula for determining the upper loan limit in high-cost housing markets.

The Senate approved the loan limit amendment by a 60-38 vote. It now moves to the House. It remains to be seen whether the House will approve the higher loan limits. The National Association of Realtors lobbied heavily to preserve the higher limits but previously, bills that would have extended it, failed to reach the House or Senate floors before it expired. The White House wants to reduce the government’s role in mortgage lending and was against allowing the higher limits to remain in place.

To appeal to those against the higher limits, the Senate amendment would impose a new loan fee of 15 basis points a year on unpaid principal balance for the life of the mortgage, which backers said would raise $300 million in revenue. A basis point is a hundredth of a percent, so a 15 basis point fee would amount to $750 on a loan with a $500,000 balance.

It has been estimated by Fannie Mae, Freddie Mac and FHA that the lower loan limits would have affected approximately 83,000 mortgages in the high cost areas. These three government agencies back 9 in 10 mortgages.

New Proposed Legislation To Help Save Homes: The HOME Act

A great story in the Sunday Los Angeles Times by Ken Harney about a bill introduced October 5th that would amend the tax code to allow homeowners who have 401(k) retirement plans to pull out money to save their houses from foreclosure without the usual tax penalties. This bill would waive the 10% penalty if the purpose of the distribution is to make loan payments to avoid loss of a primary home to foreclosure. The bill would allow owners to pull out up to $50,000 that could be used in a lump sum to pay down the delinquent morgage balance or to fill shortfalls caused by reductions of household income. It could also be used as part of a loan modification agreement with lenders designed to avert a foreclosure. The money would need to be spent within 120 days of receipt and could not exceed 50% of the funds in the retirement account.

Titled the HOME Act, short for Hardship Outlays to protect Mortgagee Equity Act, the proposal is designed to help avoid some of the known problems of tapping into employee retirement accounts. Many 401(k) plans allow "hardship" withdrawals. but these come with much stricter rules and fewer eligible uses, plus the tax penalties. Hitting your 401(k) is a desparate act for these desparate times. It should be your last resort when there isn't anything else that will save your house and you don't want to walk away. But check your plan documents you may have an alternative buried away that allows a "save-the-house" loan to yourself.