About Government Refinance and Home Purchase Programs

FHA loan limits should officially be higher by tomorrow morning. Breaking news story here.

The Senate moved quickly to revamp and pass the economic stimulus bill. The House promised to rush it to the President for signing. When it is signed FHA loan limits will dramatically increase opening the door for millions of Americans who formerly did not qualify to get FHA loans. See the AP story here.

The Senate Democrats took the stimulus package that White House and House of Representatives sent over and tried to sweeten the pot before passing the bill. The problem was it got too sweet for the tastes of the cost-conscious Senate Republicans who left the expanded bill a few votes short of passing in a vote yesterday. Here is an excerpt from an AP report on the issue:

WASHINGTON – The fate of $600-$1,200 rebate checks for more than 100 million Americans is in limbo after Senate Republicans blocked a bid by Democrats to add $44 billion in help for the elderly, disabled veterans, the unemployed and businesses to the House-passed economic aid package.

GOP senators banded together Wednesday to thwart the $205 billion plan, leaving Democrats with a difficult choice either to quickly accept a House bill they have said is inadequate or risk being blamed for delaying a measure designed as a swift shot in the arm for the lagging economy.

The tally was 58-41 to end debate on the Senate measure, just short of the 60 votes Democrats would have needed to scale procedural hurdles and move the bill to a final vote. In a suspenseful showdown vote that capped days of partisan infighting and procedural jockeying, eight Republicans — four of them up for re-election this year — joined Democrats to back the plan, bucking GOP leaders and President Bush, who objected to the costly add-ons.

Democrats choreographed the vote for maximum political advantage, presenting their aid proposal as a take-it-or-leave-it proposition for Republicans and calling back their presidential candidates to make a show of party unity behind their stimulus plan. They calculated that Republicans would pay a steep price for opposing rebates for older Americans and disabled veterans, as well as heating aid for the poor, unemployment benefits and a much larger collection of business tax breaks than the House approved.

Even after their effort fell short Wednesday, Democrats seemed determined to keep the pressure on Republicans to accept the measure, threatening to hold more votes on it in the coming days.

Majority Leader Harry Reid, D-Nev., is “going to give Republicans a chance to reconsider their vote against efforts to strengthen the economy by helping those who need it most,” his spokesman, Jim Manley, said Wednesday night.

It should be noted that the FHA reform aspect of the Senate bill is the same as the House bill. The disagreements are over things like rebates to all Americans.

The senate is working on their version of the economic stimulus package. It looks like good news so far for homeowners because they are not proposing any changes to the House suggestions. Here are some highlights from a recent AP article:

HOUSING RESCUE

House: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on Federal Housing Administration loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year increase in the cap on loans Fannie Mae and Freddie Mac may buy, from $417,000 up to $729,750 in high-cost markets. No cost.

Senate: Identical provisions on FHA and Fannie Mae and Freddie Mac loan limits. Provides mortgage financing relief for homeowners with subprime loans by expanding the availability of state and local government bonds and raising the cap on the bonds by $10 billion over the next three years. Negligible cost.

Reuters had an interesting story about the success (or rather lack thereof) of the FHASecure program so far. Here is an excerpt:

LAS VEGAS, Feb 5 (Reuters) – A federal plan to help homeowners facing foreclosure must be expanded after drawing a tepid response from borrowers since its unveiling in August, panelists at a bond organization meeting said on Tuesday.

A study circulated within the American Securitization Forum last month proposed the Federal Housing Administration broaden its FHA Secure loan refinance program to stem more foreclosures. The program should allow borrowers delinquent for any reason to refinance into an FHA loan, versus the narrow requirement that borrowers face a higher interest rate.

The ASF proposal comes amid signs that falling home prices will continue to push foreclosures higher. FHA Secure thus far has refinanced about 1,000 borrowers, making it a “failure” so far, Rod Dubitsky, a managing director at Credit Suisse, said on an ASF panel here.

More…

Here is the press release and here are the relevant sections:

The Administration is acting now to help thousands of struggling American homeowners. The Administration has launched the FHASecure initiative, expected to help more than 300,000 families refinance their homes. In addition, Secretaries Paulson and Jackson have facilitated the private-sector HOPE NOW alliance, which has developed a plan under which more than a million homeowners could receive help.

The President calls on Congress to join him in helping American homeowners refinance their mortgages by passing important legislation, including a bill to modernize the Federal Housing Administration (FHA). The bill will give the FHA the necessary flexibility to help hundreds of thousands of additional families qualify for prime-rate financing. In addition, Congress needs to pass legislation permitting cities and states to help troubled borrowers by issuing tax-exempt bonds for refinancing existing home loans. Congress should also act to strengthen the regulation of Freddie Mac and Fannie Mae to ensure they focus on their important housing mission.

Here is an interesting quote from a recent speech given by President Bush. He is 100% behind beefing up the FHA program. As soon as the reform bill makes it through the senate we can expect a quick signing on the bill.

The government can help. The Federal Housing Administration has got the capacity to help refinance homes, and they need to expand the authority of the FHA to do it. And Congress needs to get that bill passed. I mean, this will be a positive step toward helping people stay in homes. And that’s what we want to do. See, you notice, I’m not saying we’re going to bail out the lenders — we’re going to help the individual person be able to keep their home. It’s in the interest of the country we do that.

FHA reform is only one component of the economic stimulus bill that is working its way through the senate after passing in the House of Representatives already. Once the senate approves the President is expected to sign the bill immediately. The goal date set by Senate majority leader Harry Reid is Feb. 15, 2008. Here is a portion of a recent AP article that touches on the mortgage related aspects of the new bill:

The House plan includes two provisions designed to boost the ailing housing market, although lawmakers, under pressure from the Treasury Department, limited the duration of one of them.

The measure increases the size of Federal Housing Administration-backed loans from $362,790 to as high as $729,750 in expensive parts of the country such as the Bay Area, but only until the end of the year.

Democrats believed that the Bush administration was open to making that limit permanent for FHA loans. But Treasury officials insisted over the weekend that the new FHA limits expire by year-end, Steve Adamske, spokesman for Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said Tuesday.

Another measure included in the House plan raises the maximum size of mortgages Fannie Mae and Freddie Mac can buy from $417,000 to as high as $729,750 in expensive parts of the country. House leaders had agreed early on that the increase would expire at the end of the year.

Congressional leaders are aiming to send the package to Bush by Feb. 15. The goal was to start mailing out rebate checks in May and to have most of them to taxpayers by July so that people would spend the money and kick-start a slumping economy. But the divergent plans – and bids by Senate Democrats and some Republicans to enlarge the package with more add-ons – could drag out that schedule.

House Speaker Nancy Pelosi, D-San Francisco, said she hopes the Senate would “take this bill and run with it.”

It turns out the FHA reform portion of the new economic stimulus package only good through the end of 2008. That is the news that came out today as the bill passed easily in a House vote. The Senate gets a whack at the bill next.

Here is an excerpt from a recent story over at BusinessWeek.com:

The House approved two measures Tuesday designed to boost the ailing housing market as part of a broad economic stimulus package.

Under pressure from the Bush administration, lawmakers limited the duration of one of the measures.

The plan, approved 385-35, raises the maximum size of mortgages Fannie Mae and Freddie Mac can buy from $417,000 to as high as $729,750 in expensive parts of the country. The proposed increase would expire at the end of the year.

…

Democrats believed that the Bush administration was open to making that limit permanent for FHA loans. But the Treasury Department insisted over the weekend on making the new FHA limits expire by year-end, Steve Adamske, spokesman for Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said Tuesday.

The administration also swayed House lawmakers to narrow the legislation so that it focused only on hiking the loan limits, rather than enacting a broader overhaul of the agency, which was created during the Great Depression to aid cash-strapped borrowers.

“We’re baffled by this,” Adamske said, noting that the Bush administration has been advocating such legislation for months. “When push came to shove, they didn’t want to pass it as soon as it was possible.”

Jennifer Zuccarelli, a Treasury Department spokeswoman, said in an e-mail message that bills overhauling the FHA and government sponsored mortgage companies Fannie Mae and Freddie Mac “should be completed as soon as possible on a separate track from the stimulus package.”

Here is the relevant segment from a report at cnnmoney.com

Easing the housing crisis. The economic stimulus package proposed by House leaders also includes two housing measures intended to make it easier for consumers to obtain mortgages or refinance expensive subprime loans.

In his State of the Union address, Bush pushed for three other housing measures, noting that “these are difficult times for many American families, and by taking these steps, we can help more of them keep their homes.”

First, he reiterated his call to reform Fannie Mae and Freddie Mac, which guarantee the purchase and sale of home mortgages in the secondary market.

Both Fannie and Freddie have been plagued by accounting scandals, and reform would subject them to more stringent regulation. But Democrats and Republicans disagree over just how the oversight rules should be changed and also over the inclusion of unrelated elements in the reform bill.

He also called on Congress to modernize the Federal Housing Administration (FHA). The FHA loan program is intended for home buyers and home owners with weak credit. FHA reform would lower down payment requirements, increase the cap on loans eligible to be FHA-insured and lower origination fees, among other things. The House and Senate each passed versions of FHA reform in 2007.

Today the loan limit for FHA loans is about $363,000 in high cost areas and lower in other areas. The new economic stimulus package that the White House and the Democrats in the House of Representatives worked out last Thursday will increase those loan limits dramatically (assuming it can get past the Senate in the next few weeks as Senate Majority leader Harry Reid is projecting). But what will the new limits actually be. Turns out nobody know yet. The could be as high as double, or perhaps less. For those of you who want a sneak peek — Here is a recent article in the WSJ Online with some speculations on the new limits.

Leaders from the House of Representatives worked out a deal with the White House on Thursday regarding the new economic Stimulus package. Here is an excerpt from a recent AP report:

To address the mortgage crisis, the package also raises the limits on Federal Housing Administration loans and home mortgages that Fannie Mae and Freddie Mac can purchase to as high as $725,000 in high-cost areas. Those are considerable boosts over the current FHA limit of $362,000 and the $417,000 cap for Fannie Mae and Freddie Mac’s loan purchases.

However, the Senate still needs to concur before the bill is sent to the President for a signature:

Senate Majority Leader Harry Reid said the goal is to send the package to the White House by Feb. 15 for President Bush’s signature