Finding a bottom

Submitted by Matt Carter on May 7, 2008 - 9:00am.

This post was edited to correct that House vote on big housing bill will take place today.... http://www.house.gov/apps/list/press/financialsvcs_dem/press050608.shtml

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Submitted by Rebecca Levinson on May 7, 2008 - 2:31pm.

I think this bill is a bit confusing at best. Would love a great resource to point consumers to that would break it down- benefits/drawbacks.

Any suggestions?

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Submitted by Matt Carter on May 7, 2008 - 4:17pm.

Rebecca, the bill the House is debating today is huge, huge piece of legislation that is attempting to tackle many issues, some of which (like GSE reform) Congress has been debating for years. So yes, it's confusing as H E double hockeysticks if you haven't been following it.

Apart from permanent increases to loan limits for Fannie, Freddie and FHA, I think consumers would probably be most interested in the Frank/Dodd plans to expand FHA loan guarantee programs. But since President Bush is threatening to veto that, I don't know how much time people want to put into weighing the benefits or drawbacks of a program that doesn't exist and possibly never will.

I will give you a link and the proposed eligibility requirements for Barney Frank's proposed FHA expansion (which is in the House's gigantic housing bill) further down.

Right now, don't forget that the Bush administration's new FHASecure program, which is designed to help some borrowers facing ARM resets or who are already delinquent, is already up and running. Details here.

The program could be expanded in July to include two new categories of eligible borrowers see story:

* Borrowers with adjustable-rate mortgage (ARM) loans who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance -- the standard now in force.
* Borrowers with ARM loans who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. FHA will require a 90 percent LTV ratio for these borrowers to refinance.

If you want more details on Frank's proposal for expanding FHA loan guarantee programs, see this summary.

Also see this story.

In a nutshell, Frank's plan might be helpful for a troubled borrower because lenders who agree to participate will have to write down part of their loan principal. But there's also an exit fee that's designed to protect FHA from flipping.

Here are the proposed eligibility requirements:

Eligibility Requirements for Existing Loans (Requires All of the Following):

· Owner-occupied principal residences only (no investors, speculators or second homes);

· Existing senior loan being refinanced must have been originated on or before December 31, 2007;

· To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less that 35 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s);

· Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full; and

· Existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower. Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

Requirements for New FHA-Insured Loans:

· New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee);

· New FHA loan must extinguish all existing liens and substantially reduce the borrower’s mortgage debt service;

· New FHA loans under this program must be within the FHA loan limits now in effect under the stimulus for the duration of this program;

· Oversight Board will set reasonable limits on loan fees and interest rates; and

· To reduce costs to the government – and avoid inappropriate enrichment to the borrower – the government will retain a share of the borrower’s future profits. When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply.

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Submitted by Ki Gray on May 8, 2008 - 2:05am.

Is anyone running into cases where people are using FHASecure. I kind of wonder if we, as individuals in the real estate industry, know about these programs but it might take 6 months or more likely a year for individuals to start taking advantage of any of these programs.

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Submitted by Matt Carter on May 8, 2008 - 8:53am.

HUD says 150,000 people have done FHASecure refis since the launch last September and that they'll get 500,000 into the program by the end of the year.

Barney Frank thinks his FHA proposal would help 2 million borrowers, but cost the gov't up to $6 billion (2 percent losses on a $300 billion program).

CBO says that because not all lenders are going to want to take the haircut, Frank's plan would help closer to 500,000 homeowners and cost $2.7 billion over 5 years. Citigroup Global Markets has estimated gov't might lose up to $20 billion guaranteeing up to 1.5 million refis (see story).

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