About Government Refinance and Home Purchase Programs

If you are a homeowner in danger of foreclosure the Bush administration may not be getting high marks from you right now. While the democrats are pushing hard to help people who are upside down on their homes or in danger of foreclosure to refinance to an affordable FHA loan, the members of the Bush administration continue to fight the legislation. See this from a recent Reuters article on the subject:

A congressional plan to save troubled U.S. homeowners from foreclosure could hurt the economy and affect the government’s ability to help deserving homeowners, a senior Bush administration official said on Monday.

“Some in Congress are advancing legislation that, while well intentioned, could be problematic for the economy and the country,” said Brian Montgomery, who heads the Federal Housing Administration, in a speech at the National Press Club.

Legislation due to be voted on later this month by the U.S. Senate would create a new FHA fund to insure up to $300 billion in home loans. The legislation, which could save 500,000 borrowers from foreclosure, has already cleared the U.S. House of Representatives. But it has not been wholeheartedly embraced by the Bush administration.

There was a pretty good article over on the National Journal site recently about the pending mortgage relief legislation and the effect it could have on US homeowners. Here is an excerpt:

The CBO estimates that a Senate bill allowing the Federal Housing Administration to insure up to $300 billion in new subprime mortgages would help about 400,000 struggling homeowners out of the 2.2 million borrowers who are expected to face foreclosure proceedings in the next few years. The agency also said the measure, sponsored by Senate Banking Chairman Christopher Dodd and ranking member Richard Shelby, ultimately cost FHA $729 million over a 10-year period to help guarantee new mortgages for those at risk of default. While the bill’s ceiling is $300 billion in new guarantees, CBO estimated that FHA would actually provide $68 billion in new loan commitments. The Senate bill has a narrower eligibility than a House version, sponsored by Financial Services Chairman Barney Frank, which would cost $1.7 billion and help an estimated 500,000 borrowers. The FHA refinancing program is part of a broader housing package that both sides are attempting to reach agreement on before July. The overall bill also is expected to revamp oversight at government-sponsored enterprises Fannie Mae and Freddie Mac, overhaul the FHA’s mortgage insurance program, and provide some housing-specific tax breaks.

The days of buying homes with no money down through the FHA may be going away if the heads of the FHA have their way. Today a home buyer can get 97% financing through the FHA, the other 3% a charitable organization (which is basically a loophole where the seller donates 3% to the charity and the charity gives it to the buyer for the downpayment), and the closing costs can be paid for by the seller as well. It all adds up to a buyer getting into a home with no money down.

About a third of FHA home purchases have been taking advantage of this loophole in the recent past. The FHA officials want it done away with because they say folks who buy homes with no money down are significantly more likely to foreclose later.

Here is an excerpt interesting article on the subject over at the WSJ online:

FHA Commissioner Brian Montgomery said Monday that the government-backed loans made to borrowers who receive down-payment assistance go into foreclosure at three times the rate of loans in which borrowers pay for their own down payment. Loans with seller-assisted down payments make up about 35% of the FHA’s loan portfolio, up from only 5% in 2001.

After a recent evaluation, the FHA estimates it will incur an additional $4.6 billion in unanticipated long-term losses, primarily due to loans involving seller-funded down-payment gifts.

“We are concerned about this business, because the substantial losses affect FHA’s bottom line and FHA’s ability to serve American citizens who need access to prime-rate home loans,” Mr. Montgomery said during a speech at the National Press Club.