House lawmakers Thursday approved a sweeping housing bill that includes a controversial plan to expand FHA loan guarantee programs to help as many as 2 million troubled borrowers refinance into more affordable loans.
But the 266-154 vote to approve the package of bills, dubbed the American Housing Rescue and Foreclosure Prevention Act, fell short of the margin that would be needed to override President Bush’s threat to veto the bill.
The Bush administration opposes the expansion of Federal Housing Administration loan guarantees put forward in March by Rep. Barney Frank, D-Mass., as a “bailout” of lenders and speculators.
Frank has maintained that the program would not constitute a bailout because it would mostly be financed by insurance premiums borrowers pay to the FHA, and only owner-occupied homes would be eligible for government-backed refinance loans.
In addition, lenders would have to accept a maximum 85 percent of a property’s current appraised value as payment on an existing loan to participate, and borrowers would have to pay the government an exit fee to prevent them from flipping their home at a profit if housing prices rebound.
Backers of the FHA expansion plan sought to win bipartisan support by wrapping compromises on other issues Congress has been deadlocked on for years into the bill.
Those issues include so-called FHA modernization legislation sought by the Bush administration permitting the FHA to expand the use of risk-based pricing. Risk-based pricing would allow borrowers who might not have qualified for an FHA loan before to get one, although they would pay higher premiums.
The House incorporated the language of a previously approved FHA modernization bill into the Act, HR 1852, which would increase the maximum amount for loans eligible for FHA backing in high-cost areas to up to 175 percent of the $417,000 conforming loan limit ($729,750) or 125 percent of an area’s median home price, whichever is less.
The legislation passed by the House Thursday would also provide for strengthened oversight of Fannie Mae and Freddie Mac, which was sought by the Bush administration as a prerequisite for permanent increase in the $417,000 conforming loan limit for mortgages eligible for purchase and guarantee by the government-sponsored enterprises, or GSEs.
A temporary increase in the conforming loan limit — up to $729,750 in high cost areas — was scheduled to expire at the end of the year. The legislation approved by the House Thursday would make the increase permanent. The upper limit for loans eligible for purchase or guarantee by Fannie and Freddie would be 125 percent of the median home price in high cost areas, up to 175 percent of the conforming loan limit ($729,750).
The House also threw in a first-time home-buyer tax credit of up to $7,500 for individuals who earn less than $70,000 a year, or up to $140,000 for married couples, that’s supported by the industry.
“The tax credit is the most effective way to halt the downward spiral in the housing market and stabilize home prices and financial markets,” said NAHB President Sandy Dunn, president of the National Association of Home Builders, in a statement. “This will get consumers off the fence, stimulate home buying and reduce excess supply in housing markets.”
The House bill — technically an amendment to The Foreclosure Prevention Act of 2008, a tax relief bill passed by the Senate April 10 — also includes language that’s intended to protect loan servicers who engage in workouts with troubled borrowers from lawsuits by investors in mortgage-backed securities. The Senate’s bill was, in turn, an amendment to a bill originally put forward in the House, HR 3221.
Differences in the House and Senate legislation must eventually be worked out in a conference committee, with President Bush’s threatened veto expected to be used as a negotiating tool.
The Mortgage Bankers Association was among industry groups welcoming aspects of the House bill Thursday.
FHA modernization has “long been one of MBA’s top legislative priorities,” the group said, and the new, independent regulator the bill would create for Fannie and Freddie “is crucial given the current state of the market,” MBA Chairman Kieran P. Quinn said in a statement.
Quinn said the proposed expansion of FHA loan guarantee programs “has the potential to help a significant number of borrowers avoid foreclosure” but must include “appropriate safeguards” to help those borrowers most deserving while keeping the program voluntary for lenders.
While Frank has said the plan could help as many as 2 million troubled borrowers stay in their homes, the Congressional Budget Office estimates that limited participation by lenders could keep the actual number of refinances closer to 500,000 loans, with program losses of about $2.7 billion.
In another 239-188 vote, the House passed a separate bill, HR 5818, The Neighborhood Stabilization Act, which authorizes $15 billion in federal grants and loans for state and local governments to purchase, rehabilitate, and resell or rent foreclosed homes.
Editor’s note: this story has been edited to correct that HR 3121 would increase the conforming loan limit to up to $729,750 in high cost areas.
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