About Government Refinance and Home Purchase Programs

There was a pretty good article in Forbes related to the subject. Here is an excerpt:

When Congress returns from recess next week, among the first orders of business will be completing work on the Housing Bill, which would allow the Federal Housing Administration to insure up to $300 billion of mortgages. The bill has been passed in the House and a bipartisan compromise reached in the Senate committee, but Congress has yet to settle how to pay for it.

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All these maneuvers have created a plausible storyline and a low estimated cost. But the true cost of the proposal depends on the future of the housing market. Indeed, if the housing market recovers faster than expected, the Federal Housing Administration could enjoy a considerable upside. But if foreclosures occur at a greater than expected rate, the costs to the Federal Housing Administration could skyrocket. At the same time, unexpected foreclosures would further undermine the stability of the GSEs and make it difficult for them to pay the required fees, either for FHA expansion or for an affordable housing trust fund.

Right now everyone who gets an FHA loan pays an upfront mortgage insurance premium of 1.5% to get into the FHA program Coming as soon as July to amount you pay will depend on your credit score. Here is some info on that subject from an recent LA Times article:

Under the new system, according to the FHA’s outline of its plan, “a larger number of low-income borrowers [will] benefit from premium reductions than . . . moderate-, middle- and upper-income borrowers combined.”

On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5%. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually.

We’ll get more details to you as they emerge.

Even if the new FHA housing bill makes it past the President’s veto threat it now looks like it wouldn’t go live until October 1st. That is hard news for homeowners in trouble right now. See this recent CNNMoney.com article on the subject. Here is an excerpt:

In making its estimates, the CBO assumed a June 1 start date for the FHA program. But the Senate version of the legislation – considered more politically viable than the House bill – would start the program on Oct. 1.

That four-month difference is likely to flush from consideration a segment of the bill’s immediate target group: the 1.5 million subprime borrowers with adjustable-rate mortgages (ARM) whose loans are scheduled to reset in 2008.

Come Oct. 1, many of those whose ARMs reset between January and May might have already had their homes repossessed or left them during the foreclosure process.

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“The people the bill will most likely help are those resetting in the third quarter and beyond.” Sharga said. “The people who reset in the first quarter will almost certainly be beyond help.”

In some states, however, it takes as long as a year to go through the whole foreclosure process, giving some borrowers whose loans reset early in the year a potential chance to use the Senate-proposed version of the FHA program should it become law.

The housing rescue plan in the Senate passed a panel vote today and now is moving forward to the whole Senate. If things work out there is hope that the bill will become law by July. Here is an excerpt from a recent Reuters story on it:

Both the Senate bill and a similar House bill call for creating a fund under the Federal Housing Administration to let thousands of distressed borrowers refinance into government-guaranteed loans.

The legislation would have the two government-sponsored enterprises cover a large share of the losses that the new fund is expected to absorb.

The committee passed the legislation on a vote of 19 to 2 after the top Democrat and Republican on the panel crafted a compromise that won broad bipartisan support.

Now, the legislation must pass the full Senate and then be reconciled with a similar plan that cleared the U.S. House of Representatives earlier this month.

Democratic Sen. Christopher Dodd of Connecticut, chairman of the Senate panel, has said he hopes to see the mortgage rescue package reach President George W. Bush by July 4.

The White House had threatened to veto the House bill, but has said it will take a close look at the version that cleared the Senate committee.

“I don’t believe the president will veto this. I hope not,” Sen. Richard Shelby of Alabama, the top Republican on the banking panel, told reporters after the vote.

In a statement made today Secretary of the Treasury Henry Paulson said:

The new FHASecure program has refinanced over 200,000 borrowers into affordable mortgages in the past eight months

As I understand the real numbers this is simply a lie. Apparently all but about 3000 of the 200,000 borrowers he is talking about were never late on their mortgages and got into FHA loans with no help from the FHASecure program at all (which is basically a loophole program to let people who missed mortgage payments after an ARM reset qualify for an FHA loan). I know Washington is all about Spin but this is blatant falsehood as far as I can tell.

If you are in trouble with your mortgage be sure to write to your Republican congressmen/senators today and insist they get on board with the Democrats to help you out. You can’t stop President Bush from vetoing a bill that will help you but enough pressure from his fellow Republicans goes a long way

Currently everyone who gets an FHA loan pays the same one-size-fits-all mortgage insurance rate (both up front at 1.5% and monthly after that). But soon people with lower credit scores will find themselves paying more in insurance than people with higher scores. That is good news to people who consistently keep up with their bills but it means people who haven’t done so will have face higher payments on their FHA mortgages. Here is an interesting story about that from the Chicago Daily Herald.

The AP published an interesting story today implying that a compromise on the new housing bill between the White House and congress is much more likely than a veto. Here is an excerpt:

When President Bush promised to veto Democrats’ homeowner rescue bill, it may have sounded like the measure was dead.

But in a competitive election year clouded by a crippled economy, Republicans are as anxious as Democrats to strike a deal on an issue that matters to their constituents. By threatening to veto the legislation, Bush gained leverage in what promises to be a high-stakes negotiation between the White House and congressional Democrats on a compromise.

So now the bargaining begins.

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Behind the pitched rhetoric, however, the administration and Frank agree on the central concept of a homeowner rescue. Both want the Federal Housing Administration, the Depression-era mortgage insurer, to help more borrowers refinance into loans they can afford. Bush has twice relaxed the FHA’s standards to allow more such “workouts” for people facing default due to mortgage rate resets or other economic hardships.

Here is an excerpt from a pretty good CNNMoney.com story on the subject:

The House on Thursday passed a contentious foreclosure-prevention package, which still faces a veto threat from the White House and an uncertain fate in the Senate.

In a 266-154 vote – with 39 Republicans voting in favor – lawmakers approved a proposal, sponsored by House Financial Services Chairman Barney Frank, D-Mass., to let the Federal Housing Administration (FHA) insure up to $300 billion in new loans over four years if lenders agree to reduce the mortgage principal.

To qualify, the lender would have to cut the debt to no more than 85% of a home’s current appraised value. If the FHA-refinanced loans went into default, the FHA would pay the lender the remaining principal owed.

While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers. The CBO estimates the FHA expansion program would cost taxpayers $1.7 billion.

Paul Jackson over at Housing Wire wrote an interesting article the other day on the progress in of the housing bill circulating in the Senate. Looks like a senator from Alabama is being a real pain in the… umm… neck. Here are some excerpts:

Congressional Democrats’ efforts to push through a housing aid bill that would expand the Federal Housing Adminstration’s authority to insure refinancing of troubled mortgages hit a snag Friday morning, with Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-CT) tabling a planned May 6 markup of his FHA bill and a long-stalled proposal to revamp regulation of mortgage finance giants Fannie Mae and Freddie Mac.

Dodd’s FHA proposal is an analog to a similar proposal by House Financial Services Committee Chairman Barney Frank (D-MA) that was approved by a 46-21 margin earlier in the week.

The roadblock in this case appears to be primarily one man: Sen. Richard Shelby (R-Ala.), the ranking Republican on the Senate Banking Committee

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Many Republicans and the White House have softened their previously hard stance towards Fannie and Freddie amid the housing crisis — with the notable exception of Shelby, we’re told. The House long ago passed its version of GSE reform, which received White House support, but Shelby’s staunch opposition has kept the Senate’s version of the bill stuck in the Banking Committee.

I have seen representative Barney Frank’s proposed bill called all sorts of names over the last few weeks. Sometimes it is referred to as a “housing rescue” bill, sometimes a “foreclosure prevention” bill, and one author called it the “Hope for Homeowners” bill. The latest name I saw for it was “The Housing Stabilization and Homeownership Retention Act”. Well whatever they call it, millions of homeowners struggling to keep their houses are hoping the Democrats win this battle in Washington.

As reported in the AP Barney Frank’s housing rescue bill passed its’ first hurdle Thursday behind Democrats and several Republicans who broke ranks with the White House on the measure. Here are some excerpts:

Democrats and several Republicans on the House Financial Services Committee banded together Thursday to pass a $300 billion housing rescue package.

The vote was 46-21 to advance the bill, which would permit the government to insure new, cheaper mortgages for hundreds of thousands of struggling homeowners now facing foreclosure.

Ten Republicans shrugged off President Bush’s objections and joined all the Democrats present to support the bill, sponsored by Rep. Barney Frank, D-Mass., the committee chairman. Most of them are from areas hit hard by the mortgage meltdown.

Democratic leaders are planning votes in the full House next week on the housing package.

Frank said the breadth of GOP support for the plan in his committee indicated that there could be enough votes to override a veto — which takes two-thirds — but he said he was optimistic that wouldn’t be necessary.