Government Refinance Assistance

A very interesting article came out recently over at CQ Politics:

Federal Reserve Chairman Ben S. Bernanke said Wednesday that the central bank remains concerned about slowing economic growth, and he again called on lawmakers to clear housing legislation that could help struggling borrowers.

The collapse of the subprime mortgage market has helped drive a wider credit crunch, and the Fed has become increasingly concerned about the risks of a recession.

Since September, the Fed has cut its benchmark federal funds rate from 5.25 percent to 3 percent, and Bernanke suggested to the House Financial Services Committee that the central bank is open to further rate cuts.

Bernanke said Congress could best help by clearing legislation to overhaul the Federal Housing Administration to “provide a vehicle for refinancing of some of these mortgages.”

The FHA is a Depression-era agency that helps homebuyers obtain affordable mortgages by insuring the loans.

The Fed chairman also reiterated his call for a comprehensive regulatory overhaul of the housing finance giants, Fannie Mae and Freddie Mac, in an effort to preserve their safety and soundness.

Beyond those measures, “I don’t see any clear and obvious additional steps that could be taken,” Bernanke said.

As part of the stimulus package enacted last month, Congress temporarily increased the size of mortgage loans the FHA can insure and Fannie and Freddie can purchase.

But so far, the House and Senate have been unable to agree on a final FHA modernization bill. Negotiators remain divided over a House proposal to divert income paid to the FHA to an affordable-housing fund.

The House passed a regulatory overhaul of Fannie and Freddie last year, but no comparable legislation has even been introduced in the Senate.

A recent report from the AP said this:

LOS ANGELES - The number of homes facing foreclosure jumped 57 percent in January compared to a year ago, with lenders increasingly forced to take possession of homes they couldn’t unload at auctions, a mortgage research firm said Monday.
ADVERTISEMENT

Nationwide, some 233,001 homes received at least one notice from lenders last month related to overdue payments, compared with 148,425 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc. Nearly half of the total involved first-time default notices.

The worsening situation came despite ongoing efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans and other actions

The new FHA loan limits are designed to help stem some of that tide.

There was an interesting article with portions related to the FHA program in a California paper recently. Here are some relevant highlights:

For borrowers, FHA-insured mortgages are advantageous because the required down payment is only 3 percent and all of that can be a gift from a relative, an employer or a nonprofit group. FHA also allows multiple co-borrowers, none of whom has to live in the house being purchased or refinanced.

In addition, FHA borrowers can carry more debt and qualify with lower credit scores than private insurers typically allow.

Implementing new mortgage ceilings could take one to three months, according to James Lockhart, the director of the Office of Federal Housing Enterprise Oversight, the entity that ensures the financial soundness of those government-sponsored enterprises.

Donald W. Petty, owner of Pacific Sunrise Mortgage in Riverside, said Inland mortgage professionals initially expected Riverside and San Bernardino counties to qualify for the $729,750 maximum mortgage limit allowed nationally under the new legislation.

But, he said, if the Federal Housing Administration calculates the median home price the way the California Association of Realtors does, the new Fannie Mae and Freddie Mac ceiling will barely budge in the Inland Empire.

“We were pretty disappointed when we looked at the figures and the median prices had dropped to the point we may not see much of an increase in the conforming (Fannie Mae and Freddie Mac) loan limit,” Petty said of the Inland region’s predicament.

Lemar Wooley, spokesman for the Federal Housing Administration, said that agency “will use a combination of existing government data sets and available commercial information to determine the median sales price” and then apply a formula of 125 percent of the median price to set the new loan limits.

Wooley said in any metropolitan statistical area, FHA will use the median of the highest-priced county, which in Inland Southern California would be Riverside County.

“Obviously we are still crunching the numbers,” he said.

That hasn’t stopped home builders and others from speculating that based on the Riverside County median of $354,000 that the California Association of Realtors reported in December, the new Fannie Mae and Freddie Mac loan ceiling for Riverside and San Bernardino counties would be $442,500 — about 6 percent higher than the current limit.

Neighboring coastal counties, which have higher median prices, would get a far greater benefit. The loan ceilings would be lifted by 31 percent in San Diego County, 41 percent in Los Angeles County and 68 percent in Orange County.

According to the Washington Post the Office of Thrift Supervision is trying to come up with a plan to help people avoid foreclosures when they are upside down (owe more than the property is worth) on their home. It involves getting an FHA for part of the value and some sort of certificate for the rest. I frankly don’t really understand it but here is the article on the subject if you are interested.

A new report over at MarketWatch.com indicates that only a handful of US counties will see the higher end of the new loan limits stipulated in the recently passed economic stimulus package. Thankfully, most counties don’t need to reach the high end to help people. Here is an excerpt:

ORLANDO, Fla. (MarketWatch) — Only 15 counties in the U.S. have a median house price high enough to qualify for the temporary increase in the maximum loan limits called for in the economic stimulus package, an indication that the big jump may not help as many home buyers and refinancers as originally expected.

The National Association of Home Builders had hoped that as many as 29 metropolitan areas would qualify for the new $729,725 ceiling. But according to a staff member at the group’s convention in Orlando last week, it now appears that less than 10 will make it.

The NAHB has been saying that more than 3 million additional owner-occupied houses will be eligible for what are now being called “jumbo conforming” loans that can be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises charged with brining liquidity to the mortgage market.

But with just 15 counties moving to the maximum, and most of those in Southern California, it’s possible only half that number of houses will qualify.

NAHB officials also expressed concern that Fannie and Freddie’s safety and soundness regulator, the Office of Federal Housing Enterprise Oversight, will drag its feet in approving the GSEs’ programs to buy the higher-limit conforming loans.

During a Housing Finance Committee meeting, past NAHB presidents Bobby Rayburn and Kent Conine repeatedly hammered at an OFHEO officer that speed is of the essence, especially since the cut-off for Fannie and Freddie to buy the larger loans is Dec. 31.

The good news, according to Federal Housing Administration Director Joanne Kuczma, is that the median price of houses in 85% of the country’s 3,300-plus counties is high enough to qualify for a higher ceiling on FHA loans, as also set forth in the stimulus package signed by President Bush last week.

The measure boosts the limit on loans that can be insured by the FHA to the same $729,750 in high-cost areas and raises the floor on government-insured loans from 95% of an area’s median to 125%.

Under the new floor, the FHA limit would be $271,050, regardless of an area’s median home price. But that’s still substantially below the current Fannie-Freddie lid of $417,000.

The law requires the FHA to calculate the ceilings and put them in place within 30 days after the President signs the stimulus legislation. It also requires Fannie Mae and Freddie Mac to operate under those calculations.

Kuczma told the NAHB last week that a mortgagee letter notifying lenders of the new limits already has been written and will be sent within a few weeks. Until then, no one knows for certain what the ceilings will be for any particular market.

We get this quote from a recent article over at consumeraffairs.com:

NAR President Richard Gaylord said he is encouraged with plans to increase conventional loan limits.

“Higher limits for FHA loans, which go into effect March 14, will be a big help to first-time buyers in high-cost markets. Higher limits for conventional loans purchased by Freddie Mac and Fannie Mae will take a bit longer – when they become available, high-income, creditworthy borrowers in high-cost areas will have access to affordable and safer financing, and that will help unleash pent-up demand,” he said.

Looks like banks are sick of foreclosing on people too. Credit Suisse is making a request to the federal government to loosen the standards on qualifying for a government-backed FHA loan. Right now it is very difficult to get an FHA loan if a borrower has fallen behind on mortgage payments in the last 12 months. That is leading to a lot of foreclosures. If the FHA loosens standards and allows people who are falling behind to refinance the theory is that fewer foreclosures would occur. (Of course the risks taken by the FHA program would greatly increase). Here is an recent Reuters article on the subject and here is the WSJ take on it.

The long awaited day has arrived. The economic stimulus package was signed today. Among other things, it raises the loan limits on FHA loans as high as $729,000 in high cost areas. See the breaking news here.

Source: AP

We get this from a recent CNNMoney.com article:

NEW YORK (CNNMoney.com) — President Bush said Monday he is pleased with the $170 billion economic stimulus package passed by Congress last week. The White House announced that he plans to sign it Wednesday

Once that bill becomes law the FHA loan limits will officially be increased. After that it is unclear how long it will take to sort out the details with banks and to nail down the new county by county loan limits.

While the president is likely to sign the stimulus package into law this week, it is still not clear how long it will take before loan limits actually increase. This article in BusinessWeek suggests that at least some of the new limits (likely on the conventional conforming loan limits, not the FHA loan limits) won’t be in place until the summer of 08! Let’s hope it is much, much sooner for the FHA loans.

There was a good article in the San Jose Mercury News about the timing of the FHA Reform aspects of the soon-to-be-signed economic stimulus bill. Here is an excerpt:

[I]t could be weeks before consumers will be able to benefit from the mortgage provisions contained in the legislation approved this week.

The bill approved Thursday, which President Bush is expected to sign next week, includes measures that could result in lower mortgage rates for many Bay Area homeowners who are eligible to refinance. And those purchasing homes in this expensive area potentially will qualify for lower rates than they would have received in recent years.

But the logistics of enacting the bill’s changes, and the extent of the savings borrowers can expect, are unknown.

“People are very interested in saving money,” said Todd Flesner, a mortgage broker with Stern Mortgage in Palo Alto. Clients are eager to find out whether they can refinance into a lower-rate loan. But he cautions, “People who are looking to take advantage of this need to prepare to be patient.”

The bill, known as the Economic Stimulus Act of 2008, will temporarily increase the limits on loans backed by government-sponsored mortgage financing companies known as Fannie Mae and Freddie Mac, and on Federal Housing Administration loans, to as much as $729,750. These loans typically carry lower interest rates.

The new loan limit will vary by geographic region, and will be set to 125 percent of an area’s median home price, up to a maximum of $729,750.

The U.S. Department of Housing and Urban Development has up to 30 days from the time the bill becomes law to decide what loan limits apply in various parts of the country. In Santa Clara County, where the median price in December was $739,000, according to DataQuick Information Systems, it’s likely the maximum limit will apply.

The stimulus plan also will allow the FHA to guarantee loans of up to $729,750. Before the boom in subprime lending, FHA loans were the first choice of borrowers with damaged credit and little down payment. But FHA loans have hardly been used in Silicon Valley recently, because their ceilings were too low. That could change now.

Both the FHA and the conforming loan changes will be effective through Dec. 31, 2008.

See the recent Reuters story here:

WASHINGTON (Reuters) - U.S. President George W. Bush said on Friday he would sign a $152 billion economic stimulus package into law next week.
ADVERTISEMENT

The Senate and House of Representatives on Thursday approved the measure, a series of tax rebates and business incentives aimed at staving off an election-year recession in the struggling U.S. economy.

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.
ADVERTISEMENT

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.