February 13, 2009 – (RealEstateRama) — State Sen. Lowell Barron, of Fyffe, and Senator Jabo Waggoner, of Vestavia Hills, announced a new home buyer initiative on Thursday, a plan that will help more than 7,000 new home buyers in the next year and increase investments in home mortgages.
“This creates a win-win situation for everyone,” Waggoner said. “Homebuilders, with homes to sell but few buyers, will begin to sell again. Investors, afraid of mortgage foreclosures, will see reduced risks and begin to invest again. And homeowners, with reduced costs and quality loans, will begin to buy again.”
Barron’s legislation creates the Alabama Homeowners Initiative Act. The fund program will be administered by the Alabama Housing Finance Authority.
The Act creates a mortgage guarantee fund to offset certain losses by investors who hold Alabama mortgages that are foreclosed. The guarantee fund will have two sources of revenue. First, the fund will receive $6 million from the Alabama Capital Improvement Trust Fund. This is the only time proceeds will be used from the Alabama Capital Improvement Trust Fund. Second, the fund will receive the proceeds from 1 percent of the cost of every home financed by this program. This 1 percent fee will be paid by the home buyer.
“Although the home buyer will be paying a new 1 percent fee at closing, their total upfront costs for buying a home will actually be less under our program, not more,” Barron said. “By paying the 1 percent fee into our mortgage protection fund, the home buyer no longer has to buy mortgage insurance, which can cost as much as 3 1/2 percent of the home price. Therefore, our buyers will receive mortgage protection at a cheaper rate, saving money for new home owners.”
The mortgage protection fund will give additional protection to investors who risk their money in these home mortgages. Under the Barron plan, investors can recover up to 40 percent of the amount owed by the borrower. Currently, under private mortgage insurance, the investor usually recover up to 20 percent. With more protection against loss under the new fund, investors have a new incentive to invest in Alabama mortgages again. More protection means more investment.
“Our homeowner stimulus plan will cut the up-front costs of buying a home, while creating a new incentive for investors to invest in new mortgages,” he said. “This two-prong approach will get home buyers buying again, at better prices, and get mortgage investors investing again.”
The loan program is aimed at middle-class Alabama families. Total borrower income cannot exceed $98,230, which is 190 percent of the state median income. Loans offered are 30-year, fixed rate, 101 percent loan-to-value loans with strict qualifying criteria. The loans can be used to buy new or existing homes.
Other criteria include:
• Eligible home buyers must have a minimum credit score of 620.
• Eligible home buyers’ total debt ratio cannot exceed 50 percent of their gross monthly income.
• Eligible home buyers must complete a pre-purchase home buying counseling course.
“We expect to help more than 7,000 home buyers in the coming year,” Barron said. “As Alabamians buy more homes, homebuilders will start to build again. That means the generation of more sales taxes, ad valorem taxes, and economic stimulus from the bottom up of our communities.”
“It’s Alabama companies and Alabama families working together to fix Alabama’s economy,” Waggoner said.