FHA Bill's Vote Nears, Questions Still Linger

American Banker (04/24/08) P. 1; Kaper, Stacy
The House Financial Services Committee is expected to vote on a bill proposed by Chairman Barney Frank, D-Mass., that would allow cash-strapped mortgage borrowers to refinance into FHA loans after lenders and investors write down the loans by 15 percent or more below the market value, despite the fact that numerous questions about the legislation have yet to be answered. Given that the bill permits participation only by those borrowers who cannot afford their mortgages, who live in their homes, who have mortgage debt-to-income ratios higher than 35 percent and who obtained their loans before the start of the year, there are questions surrounding the number of borrowers who would benefit. While Frank believes as many as 2 million borrowers would be helped, private industry experts think just 300,000 to 500,000 borrowers are eligible. There also are concerns about whether lenders will take part in the program--as investors would need to approve the write downs--as well as questions about how market values would be calculated and how second liens would be handled. Market psychology is another consideration, according to Steve O'Connor, head of government relations at the Mortgage Bankers Association. O'Connor states, "At some point what you need to do is restore the investor and homebuyer confidence that prices aren't going to continue to drop. . . . So even if the number of borrowers isn't large, is it enough to kind of change the psychology? Can these rescue plans be a catalyst?"