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Save the date! It will be official after October 1^st. The union of FannieMae, FreddieMac and the Federal government will have the blessing of law with all of the rights of intermingling including an unlimited checking account balance if they were to ever need it. After reading the massive, 700 page THE HOUSING & ECONOMIC RECOVERY ACT OF 2008 H.R. 3221 in my comfy chair and my favorite flavor of water (drinking an adult beverage is not recommended or you will go running to your “People” magazine) the following is a quick overview. The Senate is expected to sign the bill early next week and become law October 1^st. The bill is divided into two sections: The first section is the non-bailout, bailout, of Fannie and Freddie and the regulation of both. The second section is the “Save Our Housing Industry” with many “perks” for current homeowners and prospective home buyers. Or are they? FHA will allow homeowners (primary residence only) to refinance their homes to an FHA fixed rate loan if they are at risk for foreclosure from mortgages they took out over the past couple of years. FHA will refinance up to 90% of the current appraised value. This is a voluntary program and the homeowner’s current lender (or lenders, if they purchased with an 80/20) will have to agree to a “short refinance”. The homeowner will also have to agree to split any future equity with FHA if they sell their home or refi again. Current income will be verified and within FHA guidelines. The house payment cannot be more than 31% of the documented monthly gross income. Issues? There are a few. Some lenders may not agree to a short refinance as they may make more money letting the home go into foreclosure because of agreements the banks have with their investors. Many of the “at risk of foreclosure” homeowners are tapped out on credit cards or other loans to save their residences, so they are not going to qualify because of the ratio ceiling. And if you purchased your home with a “stated” program? Forgetaboutit.

Loan limits will be raised in SOME AREAS. Bets on Maricopa and Pinal County? We will see. The $625,000 that is bouncing around the news is NOT FOR OUR AREA. The Law makers did not take into consideration the “at risk homeowners” with the higher home prices in Arizona.

The FHA down payment requirement will be raised to 3.5% of the purchase price from 3%. Down payment Assistance Programs (Nehemiah and Ameridream) will be terminated. You read it right. H.R. 3221 is eliminating the DPA’s and increasing the FHA down payment amount.

There will be a “tax refund” for first-time homebuyers for up to $7500. Except it is really a loan since it has to be paid back over 15 years. Huh? Well, you take the full amount as a tax credit the first year and pay it a back over 15 equal installments. And when you sell your home you have to pay it back.

So who are the winners for the new bill other than Fannie and Freddie?

The predicted demise of the American Economy again has proven the soothsayers wrong again. Fannie and Freddie were handed “get out of jail free” cards by the Fed on Sunday, with extended credit lines they can access anytime they want. (I can’t even get my bank to reinstate my $25,000 home equity line of credit) The SEC put a choke hold on “short selling” of Fannie and Freddie stocks. Short Selling is when a trader does not own the stocks. The trader bets that the value of the stock will decrease. So they sell the stock at today’s price and then buy it back when it decreases in value. And they never really owned the stock. When the rumors start flying the stock hags start short selling.

Citibank and J. P. Morgan Chase both reported billion plus dollar losses but they were not near what analysts had predicted and Wells Fargo reported better than expected second quarter results. The stock market loved the news and recovered some of its losses over the past two days. The news was not interest rate friendly, though. The Fed wants us to feel their pain with the decisions that will be forthcoming: leave the Fed rate alone to sustain economic growth or raise the Fed rate to ward off inflation and breathe some life in our dollar. Now back to my credit line….

FYI: The American Economy is the strongest Economy in the world. Over the past 50 years it has sustained catastrophes that individually could have undermined our greatness. In the 1960’s we withstood the assignation of our President, John F. Kennedy, his brother and Attorney General, Bobby Kennedy, our civil rights leader, Martin Luther King, rioting in the streets, the Viet Nam War. Each decade since has been chalk full of intrigue, wars, scandals, greed, presidential impeachment ("I am not a crook") and near impeachment ( "I did not have…. "well, you know. The last time I used the “s” word in our column some people got offended), gut wrenching high interest rates (18%, anyone?), Black Monday (in 1987, when the stock market fell 22.6% in one day), terrorist attacks beyond any Stephen King horror story, Savings and Loan’s debacle, oil busts, tech busts the list goes on. We are strong and evolving. This too, shall pass.

A gentle breeze turned into a hurricane this week with the Wall Street gossip mongers howling that the lending giants Fannie Mae and Freddie Mac are insolvent, sending their stocks into a steep decline. Proof? Wall Street doesn’t need any stinking proof, rumor and innuendo will work just fine thank you. So it must be because of the default rate? Nope. Fannie's default rate as of April was only 1.22% of all their loans up only 00.62% and Freddie's was 00 .81 up from 00.49%. Fannie and Freddie do not originate home loans but they buy the home loans from virtually all banks or lenders that do home loans. When the lenders tell your client, “the guideline says”, it is either Fannie or Freddie’s rules. The banks fund the loans, sell it to either Fannie or Freddie and they replenish the bank’s vaults with Fannie or Freddie's money. (For the sake of this conversation we are omitting FHA and VA) Fannie and Freddie in turn repackage the loans, now called mortgage backed securities and place them “for sale” to investors. Billions of dollars change hands every week. Well, until this week. The gossip put a screeching halt on the confidence of both companies and investors scampered away leaving their stocks in tatters. Wall Street’s memory is not very good. If they could stop talking trash and think, they may recall that Fannie and Freddie are not the only ones responsible for the almost 12 trillion dollars in mortgage debt. Mortgage Insurance companies are also on the line for a portion of all loans with less than 80% loan to value. If Fannie and Freddie do crash and the U. S. government steps in (they say they won’t but they will) it will change the landscape of home loans not just for today but forever.

FYI: Stop fretting on what to get me for my birthday! Maseratis’s sales jumped 20 percent last month. They sell for $115,000 and get 12 miles a gallon. They have already sold 1,353 in the U. S. this year. Want to make 1,354?

DIANE GERDES