Florida Real Estate News : Sarasota Florida and Beyond

After the U.S. Senate (74 to 25) and U.S. House of Representatives (263 to 171) passed the Emergency Economic Stabilization Act of 2008, President Bush signed the Act into law on October 3rd, 2008. In the end 33 Democrats and 24 Republicans changed their vote to pass the legislation in the U.S. House. Now from NAR (National Association of Realtors), here is what this final Bill means.

Homeowners and Borrowers 

• When the Treasury (or other Federal Agency that holds mortgages) acquires troubled existing mortgages from financial institutions, agencies are required to work with lenders and mortgage servicers to find ways to avoid foreclosures.
• All Federal Agencies are required to work with servicers to facilitate loan modifications that will consider the net present value of the mortgage.
• Similiar refinancing and foreclosure prevention requirements apply to mortgages involving owners of multi-family properties and owners of commercial properties. Policy goal is to assure that tenants don’t lose their residence or place of business when an pwwner has problems with the mortgage.
• Changes to existing mortgages can include (but are not limited to) revisions in principal, interest rate and period for repayment.

 Tax Relief

• The Senate added an extensive package of extensions of expired and expiring provisions that had passed previously on a vote of 93 to 3. Extended provisions include the 15-year life on leasehold improvements, brownfields clean-up deductions, deducting for mortgage insurance premiums and relief from the Alternative Minimium Tax.

Getting Money Into the Financial System Quickly

• The credit markets are nearly frozen. Lenders can’t lend because they are receiving no payments on existing loans. The legislation allowed the government to buy troubled loans and mortgage securities. The funds that the institutions received when the government purchase d the existing portfolios were to be available to issue new mortgages with more carefully specified and monitored lending standards. Provisions include:
• Create a TARP (Troubled Asset Relief Package) to purchase and guarantee the troubled assets from the financial institutions that hold mortgages and/or mortgage-backed securities.
• A new Office Of Financial Stability within the Treasury to operate TARP, with input from the Federal Reserve, FDIC (Federal Deposit Insurance Corp – the agency that works with failed and failing financial institutions to insure and protect consumers), the Comproller of the Currency (Bank Regulator), Office of Thrift Supervision (Regulator of former savings and loan companies) and the Secretary of Housing and Development.
• Don’t give out the money at one time. First release of funds to purchase troubled assets will be $250 Billion. Second release of up to $100 Billion must be authorized by the President. Final $350 Billion can be issued only Congreeional approval. Congress can give 15 days to act.

Follow Protect and Watch Over the Money.

• TARP Oversight Board at Treasury  to supply monthly activity reports
• Secretary of the Treasury – detailed reports to Congress for each $50 Billion in transactions.
• Government Accountability Office (Congress’s Author) financial reports about TARP activities every 60 days.
• Judicial Review – Federal Courts may issue injunctions when there is a finding that the Secretary of the Treasury has acted in a manner that is arbritary, capricious or outside the law.
• Create a new IG (Inspector General) for TARP. The “cop on duty”.
• Appoint a Congressional Oversite Panel to receive and process all of these reports to keep Congress informed.
• Federal Reserve – provide reports to Congress on utilization of the lending authority to assist ailing financial institutions created earlier this year.  

Put the Brakes on the Bad Guys

• No conflict of interest.
• No Golden Parachutes or severance packages.
• No tax deductions allowed for executive compensation of more than $500,000.
• All agencies to cooperate with the FBI investigating fraud, misrepresenting in selling financial products.

Give Taxpayers a Stake in the Profits

• Historically, when the government has intervened to shore up company’s or government financial dealings, the long term effect has been that the government has made money on the deal (such as the loan guarantees made to Chrysler and loans to New York City).
• Any profits made when the government sells TARP assets would be used to pay down the national debt.
• The government will receive warrants in the companies that participate in TARP. Warrants are similiar to stock, but do not grant any voting authority. Any dividend gain or warrant sale that creates a gain would entitle the government to that gain.

Savings Safeguard

• Increase the amount of Federal Insurance from $100,000 to $250,000 on bank accounts.

Recoup What is Still Owed

• After 5 years from the data of the October 3rd, 2008, if the program has lost money, the sitting President will be required to present a plan to Congress for ways to recover the funds from the financial institutions that benefited from the TARP relief.