Administration Offers New Mortgage Assistance Plan

MBA (4/10/2008 ) Sorohan, Mike
The Bush Administration yesterday introduced a new mortgage assistance plan for subprime borrowers that would expand HUD’s FHASecure program.
The program, announced yesterday at a House Financial Services Committee hearing, would, in the estimate of Administration officials, help 500,000 homeowners stay in their homes by cutting mortgage payments. The program would give FHA added flexibility to insure more mortgages, including those for borrowers who were late on a few payments and/or received a voluntary mortgage principal write-down from their lender.

"Our plan will help hundreds of thousands of desperate families who have no place else to turn for safer, lower cost ways to keep their homes," said FHA Administrator Brian Montgomery. "We want to be able to help families who are in the right house, but the wrong mortgage."

Borrowers would be eligible for the program under the following conditions:

• Borrowers with adjustable-rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous 12 months. In this case, FHA would require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance, the same LTV as FHA's current standard.

• Borrowers with adjustable-rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. Under this scenario, FHA would require a 90 percent LTV ratio for these borrowers to refinance.

The plan comes amid growing concern over FHA’s financial viability. Housing economists and government officials asserted this week that FHA could face a budget shortfall by as much as $1.4 billion in fiscal 2009, requiring Congress to subsidize FHA for the first time in its 74-year history.

Montgomery said the proposed changes would enable FHA to operate without subsidies. “Consistent with FHA's historical mission, the changes are designed to help FHA provide additional liquidity and stabilize local real estate markets," he said, adding that FHASecure has already helped more than 150,000 homeowners.

House Democrats, led by Financial Services Committee Chairman Barney Frank, D-Mass., expressed support, calling the Administration's more agressive steps a positive development. Frank told reporters that the realities of the subprime crisis created political pressure on the White House to take additional action.

Frank’s own legislative proposal (http://financialservices.house.gov/FHA.html) would permit FHA to provide up to $300 billion in new guarantees that would help to refinance at-risk borrowers into viable mortgages; in exchange for lenders agreeing to a “substantial” write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA guaranteed loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay.

The bill also permits the loan program to be used to refinance and guarantee mortgages through a facility that would provide for auction or other mechanism to refinance loans on a bulk basis; and provides $10 billion in loans and grants for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible.

Consumer groups said the Administration proposal does not go far enough to help homeowners facing foreclosure. And while both the Administration's and Frank's proposals appear to have bipartisan support, several House Republicans said the measures go beyond the scope of what the federal government should do, preferring instead free-market corrections.

Rep. Randy Neugebauer, R-Texas, lauded the efforts of the HOPE NOW Alliance, of which the Mortgage Bankers Association is a member, noting that the Alliance has helped more than one million homeowners stay in their homes. But he warned that legislators should not put in a remedy that would hamper market self-corrections.

“We first need to remind ourselves that 95 percent of Americans with a mortgage are making their payments in full and on time,” Neugebauer said. “It is not the role of the federal government to create equity in a home. Yet the proposal we are discussing today would put the federal government in a position of determining a borrower’s equity and put the taxpayers on the hook for any further declines in that borrower’s equity or default...Congress shouldn’t penalize Americans who are making their payments and working hard to stay in their homes. Families shouldn’t have to make their mortgage payments and their neighbor’s mortgage payment too.”