Government Refinance Assistance

Last Fall President Bush unveiled his FHASecure plan and hailed it as a wonderful way to help homeowners struggling with adjustable rate mortgages (ARMs). The idea was that while FHA normally rejects borrowers who had more than one late payment on their mortgage in the last 12 months, with FHA Secure a loophole was added that said “you can be late on your mortgage more than once if the late payments happened as a result of your ARM resetting upward”. Sounds ok right? The problem is the plan hasn’t worked at all. There were all kinds of problems with it from the beginning and recent data published in the NY Times says that only about 2000 homeowners have been able to take advantage of it while millions of others have lost their homes or are on the verge of losing them.

The problems were numerous from the start. First, very few banks were participating at all because they were having trouble finding anyone to sell the loans to on Wall Street. Second, the plan allowed for late mortgage payments but not other credit problems and most people tend to go late on all their other bills before they go late on the mortgage. Third, it didn’t help people before they went late on their mortgage so the prudent borrowers looking to prevent trouble were not helped at all by this program.

In short it was a disaster.

How long until we get a new President again?

President Bush doesn’t have to worry about his popularity any more so opposing the Democrat-led plan in congress to help homeowners avoid foreclosure is no problem for him no matter how many Americans it alienates. Not so for House republicans who would like to be re-elected in 2008. More of them are getting on board with the bill going through congress sponsored by Barney Frank. Here are some excerpts from a recent AP article on the subject:

The Democrats’ housing rescue plan is picking up converts among Republicans who are shrugging off White House objections after getting an earful from voters struggling to stave off foreclosure.

The GOP support is coming from regions hardest-hit by the housing crisis, a sign that battle lines over how to address the mortgage meltdown are more geographic than partisan.

Rep. Steven C. LaTourette, an Ohio Republican, says housing officials in his area have warned him that “a ton” of his constituents have adjustable-rate mortgages that will reset to unaffordable rates this year or next.

Lawmakers who fail to work together on a solution will do so “at their peril,” said LaTourette, who is backing Democrat Barney Frank’s plan.

“This has the ability to keep people in their houses,” said LaTourette, a seventh-term congressman who is facing a competitive re-election race.

As for President Bush’s opposition, he says Bush and his team are “just not thinking clearly on this.”

…

The vast majority of Republicans still side with Bush, whose top housing officials have said the plan would open the government to excessive risk. The administration backs a far narrower program that would loosen FHA standards but would be limited to borrowers with good credit, less debt and a history of making timely payments. That plan wouldn’t force lenders to take big losses on the distressed mortgages.

But Frank, known for reaching across party lines, has been working intensely to draw GOP support for his plan. His efforts appear to be paying off as the House heads toward a likely vote on the bill next week.

Rep. Gary Miller, R-Calif., apologized profusely to Republicans on the Financial Services panel for his decision to break with them and support Frank’s bill.

“Politics is being set aside on my part. I’m a conservative. I really wish I could support my Republican colleagues on this,” Miller said as the committee began work on the measure last week. But he added, “I’m very concerned about the marketplace. I’m concerned about the economy. … People are suffering in this country.”

Aside from having the second-highest foreclosure rates, his state of California has some of the highest housing prices in the country. Miller wants Congress to raise loan limits for the FHA and for Fannie Mae and Freddie Mac, the government-sponsored financiers and guarantors, to bring down interest rates on larger mortgages.

Frank has said the final housing package will include such steps.

Rep. Ginny Brown-Waite, R-Fla., whose state is in the top five in the nation for foreclosures, has signed on as a co-sponsor of the measure.

“I go home every weekend. I see people (and) our office helps people who are having problems with foreclosures, and I think it’s a responsible approach,” Brown-Waite said.

In better economic times, Brown-Waite said, she would be more reticent to embrace government intervention, but, “When you look at the number of foreclosures in Florida alone and in other states, the role of government certainly isn’t to bail them out, but to give them a helping hand.”

SFGate published an excellent article spelling out the various legislation in congress right now. It turns out that the so-called “Foreclosure Prevention” bill is a disaster brought to us by the lobbyists and it looks like it is designed to make the rich richer. We get these quotes on it:

Foreclosure Prevention Act: This bill, which is fairly far along in the political process, would modernize FHA loans, increasing the agency’s mortgage limit to $550,000.

It provides funds for pre-foreclosure counseling, and $10.9 billion in mortgage revenue bonds for loan refinancing. It gives $25 billion in tax breaks to home builders, as well as domestic airlines, automakers and other manufacturers. It also encourages purchase of already-foreclosed properties, with $4 billion in grants for communities to buy foreclosures and a $7,000 tax benefit for people who buy them.

The bill has the rare distinction of uniting consumer advocates and conservative economists in disdain. “Big tax breaks for home builders is the centerpiece, which we think is atrocious,” said Paul Leonard, West Coast director for the Center for Responsible Lending. “It’s a triumph of lobbying over need,” said John from the Heritage Foundation. Consumer advocates support the FHA reform and counseling money, though.

What a mess.

The bill that consumer advocates really want is being called the Hope For Homeowners bill. Here is a description:

Lenders would voluntarily submit shoddy mortgages for refinancing, taking a drastic haircut on the amount owed in exchange for a lump-sum payoff. Mortgages would be issued for 90 percent of homes’ current values – which are likely much less than the original amount of the mortgage. The FHA would take part of the new loan as a fee, and then would share in future appreciation. Democrats project the government might lose 1 to 2 percent of the $300 billion if refinanced borrowers later default.

Consumer advocates strongly support the bill, but it draws fierce criticism from the White House and Republicans.

If you are in trouble with your mortgage it looks like the Democrats are your allies right now…

Check out this interesting set of numbers from a recent article over at the San Francisco Chronicle:

A congressional proposal to refinance struggling homeowners into 30-year fixed mortgages works like this:

The FHA would refinance homes with mortgages for 90 percent of their current value, leaving 10 percent equity in each home. That equity would be split between the FHA, as its cushion in case of defaults or further market collapses, and the homeowner, to give some “skin in the game” as incentive to stay in the house.

Suppose you bought a house for $600,000 two years ago, putting no money down and it has lost about 16 percent of its value.

– $500,000 – home’s current value

– $450,000 (90 percent of current value) – the new FHA mortgage. Of that, $425,000 (85 percent of current value) goes to the lender and $25,000 goes to the FHA as a fee.

– The lender is now swallowing a total loss of $175,000, or 29 percent of the original $600,000 mortgage.

– $50,000 (remaining equity in the home) – split between FHA and borrower. When the home is sold, the FHA would get a share of any appreciation.

The real question is whether banks will actually go for this kind of offer. What must a borrower do to qualify? Answer are likely pending on these questions so stay tuned.

Congress is slowly trying to help stem foreclosures. See this quote from a recent article at housingwire.com:

Earlier Wednesday, the House panel also passed H.R. 5579, the Emergency Loan Modification Act, without a vote. The proposed bill would seek to shield mortgage servicers from legal liability arising out of bulk loan modifications that may violate existing Pooling and Servicing Agreements, and is strongly opposed by many industry groups.

Congressmen Michael N. Castle (R-DE) and Paul E. Kanjorski (D-PA) originally introduced the bill in mid-March.

“I think it’s in the best interests of at-risk homeowners and investors to work out payment terms that give a homeowner financial stability and the investor some return for their investment,” said Castle. “Without this legislation, I am concerned that lawsuits could bring modifications to a halt.”

The AP is reporting that President Bush would veto the House foreclosure prevention bill if presented with it today. Reuters has a the Bush team saying “we can work with this bill”. Perhaps they are both right. It looks like the bill will need to be cut back a little but a compromise is likely.

There was another pretty good AP article on the foreclosure prevention bill in the AP recently. Here are some excerpts:

Homeowners staggering under mounting mortgage debt and facing foreclosure could get cheaper, government-backed loans under Democrats’ housing rescue plan.

But first, lenders would have to agree to wipe out part of their debt. And the borrowers would have to show they could afford the new mortgage. They also would have to agree to share any future profits on the home with the government.

…

It’s unclear how many would qualify, however, even under far looser FHA standards. Also an open question: whether mortgage servicers would agree to participate in the voluntary program.

…

Frank’s two-year program is designed to offer another option that would let borrowers keep their homes and give mortgage holders a chance to get a heftier chunk of what they’re owed than they would with foreclosure. Typically, mortgage holders lose up to 40 percent on foreclosures.

To take part, a loan officer could contact an FHA-approved lender, who would calculate the terms of an affordable mortgage the borrower could be expected to repay. If the existing mortgage holder agreed to take a substantial loss — he would get no more than 85 percent of the home’s value and pay FHA fees and closing costs — the FHA lender would pay off the loan.

The new, fixed-rate loan would be for no more than 90 percent of the home’s value.

The idea behind the plan is that mortgage holders could do better accepting a loss now in exchange for getting a delinquent borrower off their hands than they would if they went to foreclosure. In some cases, however, a homeowner will be so financially strapped that the lender would stand to lose too much from the deal and would opt to foreclose instead.

Critics say mortgage holders would have little incentive to participate in any case, because they would have no chance of recovering a substantial chunk of what they’re owed.

To qualify, borrowers would have to be devoting at least 35 percent of their monthly pretax income to a mortgage payment on loans originated before Jan. 1, 2008.

The bill is H.R. 5830.

There was a brief summary from the AP of the changes to the FHA qualification requirements in the new bill going through the House right now. Here is an excerpt:

Legislation by Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, would relax the Federal Housing Administration’s underwriting standards to allow the hardest-pressed homeowners to qualify for government-backed loans.

That includes people who owe more than their homes are worth and are badly behind on their mortgage payments, have poor credit and devote a hefty share of their monthly income to servicing their mortgages, credit card bills, car payment and other debts.

Here’s how eligibility would change.

To get an FHA-backed loan now:

_Total monthly debt obligations (including mortgage, car, student loan and credit card payments) cannot amount to more than 43 percent of monthly gross — pretax — income.

_ Monthly mortgage payment (including property taxes and insurance) should not be more than 31 percent of income.

_Poor credit score or past delinquencies can be disqualifying factors. (New rules in effect until the end of the year allow people who fell behind after their mortgages reset or missed two or three payments to be eligible.)

To get an FHA-backed loan under Frank’s measure:

_ Monthly payment on the existing mortgage has to be at least 35 percent of income as of March 1, 2008.

_ With new loan, total monthly debt obligations could rise to as high as 50 percent (or 55 percent at the FHA’s discretion) of monthly income so long as the borrower could show that he made six months of payments on the previous mortgage on time.

_ Poor credit score or past delinquencies cannot by themselves disqualify a homeowner.

We recently got this quote from a Forbes article:

As outlined by FHA Commissioner Brian Montgomery this morning, the White House proposal encourages lenders to reduce the principal on loans, in exchange for FHA insurance for the renegotiated loan. Sound familiar? It should to those following Washington’s fight over how best to help troubled homeowners.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee has the same provision in his bill, as does Sen. Chris Dodd, D-Conn., who proposed the Senate version.

The key provision in the various foreclosure prevention plan is that in cases where homeowners are upside down and likely to foreclose, banks could allow them to write off some of the debt and refinance the homeowner into a new, lower balance loan. The proposal in congress has the new loan at 85% of the current value of the home.

So if a homeowner owed $125,000 on their house and the value of the house had decreased to $100,000, banks would have to forgive $40,000 in debt in order to refinance the homeowner into a government back FHA loan. What would a bank want do such a thing? Because if the homeowner forecloses the bank would lose a lot more than $40,000. By getting the $85,000 government-backed loan in place the risk of foreclosure would be borne mostly by the FHA. It would be the lesser of two evils for the bank, good for the consumer (even though mortgage insurance premiums would be in place), and good for the US economy in general.

We’ll see how it all plays out over the next few months…

An excellent recent article over at CNNmoney.com briefly overviewed the important parts of the new foreclosure prevention bill the congress has been cooking up this week. Here are some excerpts (italics are mine to emphasize key parts):

Congress isn’t done debating how best to stem the foreclosure crisis, but one near-certainty has emerged: Lawmakers will pull together a housing bill that expands Washington’s role in helping troubled borrowers.

Key legislators, Bush administration officials, banking regulators and the presidential candidates have lined up behind the idea of letting the Federal Housing Administration back new loans for homeowners at risk of foreclosure.

Several plans have been proposed. All of them would let the FHA insure mortgages for troubled borrowers whose lenders voluntarily write down loans to an affordable level. Once refinanced, the loans could be sold to investors, which in turn could grease the wheels of the mortgage market as a whole.
….

The leading Democratic plan – from House Financial Services Chairman Barney Frank, D-Mass. – is the most ambitious one proposed. It would let the government back as much as $300 billion in new loans if lenders reduced the mortgage principal owed to no more than 85% of a home’s appraised value.

The Frank bill is expected to be approved by the Financial Services committee next week and likely will go to a full House vote by the first week in May said Andrew Parmentier, a managing director and policy analyst for Friedman, Billings, Ramsey & Co.

Parmentier expects the House to overwhelmingly approve Frank’s rescue plan and he predicts it will then go straight to conference negotiations with the Senate to hammer out the differences.

…

While critics worry that an FHA rescue plan could amount to a bailout, supporters say it’s not since everyone involved – lenders, borrowers and mortgage investors – would make a sacrifice.

* Lenders get 100% backing from the FHA if a loan goes south. In exchange, the lender takes a “haircut” – reducing the principal owed and converting adjustable-rate loans to fixed-rate mortgages.
* Borrowers get to keep their homes, but they would pay a premium to the FHA for the mortgage insurance and they would have to give a small portion of their equity to the FHA when the house is sold. They would also have to show they can afford the newly refinanced loan.
* Mortgage investors – while they would sacrifice some future income from loans that have been reduced – would have more confidence investing in the new loans since the refinanced loans will be affordable and the borrower therefore will be more likely to pay them back.

…

Government risk will be a key area for compromise. To reach a deal, Seiberg said, negotiators must accomplish two things. First, make sure lenders give up enough principal so the government isn’t subsidizing them. And second, make sure borrowers pay enough – in premiums to the FHA and in equity to the government when they sell the house – to give the program the best chance of paying for itself.

Stay tuned folks. This debate is huge for those of you who can’t yet get even an FHA loan because you are upside down.

An idea that has been gaining popularity in Washington with both Democrats and Republicans is a new bill that would require lenders to allow troubled homeowners to refinance even if they are upside down (owe more than the home is worth) now. Some of the plans have banks allowing homeowners to refinance 85% of the current value of a home and forgiving the original full debt. There was an interesting article at MarketWatch recently on the developing plan. Here are some excerpts:

WASHINGTON (MarketWatch) — While the White House wants to avoid moves it sees as bailing out irresponsible mortgage borrowers, observers say it’s likely that lawmakers looking to be reelected this year will expand the reach of the Federal Housing Administration to keep more borrowers in their homes.

The House and Senate are trying to figure out the right way to widen the reach of the Depression-era agency, with Democrats favoring a large new financial responsibility, a move that concerns conservatives. But there are areas where consensus is developing, such as helping troubled borrowers to stay in their homes by encouraging lenders to write down loan values — a move that the Bush administration advocated last week through its targeted FHASecure program.

“We do think it’s a good development that the White House is agreeing to work with consumers with blemished credit,” said David Berenbaum, executive vice president with the National Community Reinvestment Coalition, a fair-lending advocate.

….

“Legislatively it is our hope that a major commitment will be made to keep America’s working families in their homes,” Berenbaum said.

….

On Wednesday the Senate Banking Committee heard from experts about foreclosure prevention. A plan from Chris Dodd, committee chairman, would create a fund at FHA to insure new, affordable mortgages for distressed homeowners.

“Under my proposal, no one — I repeat — no one, gets what could be described as a bailout,” Dodd said at the Wednesday hearing. “Lenders and investors will have to take a serious haircut to participate in the program. But, in return, they will receive more than what they would recover through foreclosure.”

….

Details could also trip up passage of major FHA legislation. A key to most FHA plans is how great a write-down lenders would have to accept, said Allen Fishbein, director of credit and housing policy with the Consumer Federation of America.

“The situation is very much in flux,” Fishbein said. “Foreclosures are still continuing unabated and likely to increase in coming months, so you see support growing for some approach to use the FHA program to help borrowers avoid foreclosure.”

The Washington Post has an excellent article recently on the popular foreclosure prevention plan congressman Barney Frank has been floating recently. Here are some relevant parts:

The administration and Federal Reserve Chairman Ben S. Bernanke have urged banks to write down loans voluntarily, but reductions in principal remain rare. So, in late February, Frank suggested a far more aggressive role for the FHA, the government’s mortgage insurance provider.

Under his plan, the FHA would be authorized to insure about $300 billion in new loans, nearly doubling its current portfolio. The new mortgage insurance would be offered on refinanced loans in which lenders have agreed to accept 85 percent of a home’s current appraised value as payment in full. That could mean a substantial loss to the lender but probably a smaller loss than if the devalued house were sold at a foreclosure auction. It also would keep the borrower in the house with more affordable monthly payments and an equity stake in the property.

The idea has won support among Democratic leaders in the House and Senate, as well as both Democratic presidential candidates. Last week, the presumptive Republican nominee, Sen. John McCain (Ariz.), endorsed a more limited version of the same idea, as did the White House.

A major difference between the administration’s plan and Frank’s proposal is the type of people who would be eligible for help. Under its newly expanded FHA Secure program, the administration would relax its requirement that loans be current, offering help to people who miss two or three payments. But the program would be limited to borrowers with subprime adjustable-rate mortgages, which periodically reset to higher payments. Borrowers also would have to meet the FHA’s other standards, including overall debt payments that do not exceed 43 percent of monthly income.

Frank’s proposal would loosen those standards. A borrower with any kind of loan — not just a subprime ARM — would be eligible for help regardless of how many payments he or she had missed or how bad his or her credit history is. To target the truly desperate, the plan would require borrowers to have an existing debt load equal to at least 40 percent of income. Under the new mortgage, the debt load could go as high as 55 percent of income if the borrower demonstrates an ability to make payments for at least six months.

Mortgage holders could offer loans in bulk for FHA insurance. All the new loans would be grouped in a rescue fund kept separate from the healthier loans the FHA now insures. Democratic aides acknowledged that the foreclosure rate on the new loans is likely to exceed the current FHA foreclosure rate of 2.34 percent.

Federal housing officials said the new loans would be unacceptably risky, leaving taxpayers holding the deeds to thousands of devalued homes. They also say too few people with these loans would qualify for help under Frank’s proposal to boost the slumping housing market.

According to a HUD analysis of Federal Reserve Board data on borrowers with subprime ARMs, 60 percent have debt-to-income ratios of more than 40 percent, meaning they would meet Frank’s standard for distressed borrowers. But about 10 percent are speculators who bought investment properties rather than primary residences and therefore would not qualify.

More than a third have so-called liar loans that required little or no documentation of income — a sign that the borrowers cannot afford their homes under any circumstances. Nearly 40 percent have very poor credit scores, raising doubts about their ability to make payments. More than half have refinanced their homes at least once, stripping out cash for other uses.

Democratic aides say Frank’s plan would cover the cost of loan defaults by charging mortgage holders high fees; it would also create a federal oversight board to evaluate risk and make adjustments. While the loans would carry more risk, aides said Frank’s plan would give the borrowers a reasonable chance to succeed.

“If you’ve got something that improves the situation and it’s got no downside,” Frank said, “why don’t you do it?”

Analyses of the proposal by Lehman Brothers and Merrill Lynch support the view that as many as 2 million borrowers could qualify for help. A more detailed analysis by UBS set the number at about 463,000. Last week, a report on the housing crisis by the Congressional Budget Office estimated that plans such as Frank’s would benefit “perhaps several hundred thousand borrowers . . . over the next few years.”

“Many authors of these proposals fail to appreciate the difficulty of meeting the two key criteria everyone agrees upon. Namely, that (1) only ‘good’ homeowners should be helped . . . and (2) the plan must be broad enough to have a noticeable impact on the housing market,” the UBS report said. “It will be hard to design a program that achieves both objectives.”

There was an interesting opinion piece in the New York Times on the foreclosure prevention bills floating around congress. The authors thinks the current bill that made it through the senate stinks. They also thinks that counting on banks to voluntarily help consumers out is a terrible idea. Here is a good quote:

The plan for an F.H.A.-backed rescue also would rely on lenders to voluntarily reduce the loan balances to a level where the F.H.A. could take over. Volunteerism is not working. What’s needed is a stick like the bankruptcy amendment. Lenders will be more likely to modify a loan if they know the alternative is having a judge do it.

Lawmakers know what to do. They just need the political courage to confront the mortgage industry.

US politicians seem to be suddenly all in agreement that something must be done to help people avoid foreclosures. And no wonder, with so many Americans in trouble with their mortgages and upside down on their values they are looking to the government to do something to turn things around. At the heart of basically every foreclosure prevention plan is the FHA program. The most aggressive plan is coming from representative Barney Frank. Here is an excerpt from a recent article at the Christian Science Monitor:

But the most ambitious effort is unfolding in the House Committee on Financial Services, where Chairman Barney Frank (D) of Massachusetts is working up a comprehensive housing plan that aims to help 1.5 million families stay in their homes. The proposed bill, which is expected to be taken up in committee next week, gives the FHA authority to guarantee up to $300 billion in refinanced loans, if the lenders agree to reduce the outstanding principal on those loans.

“The FHA is the only agency in the federal government that can go into crisis mode and quickly help hundreds and thousands of people,” says committee spokesman Steven Adamske.

In order to connect with a lender that is authorized to administer FHA, conventional, or other government-backed loans in your area please fill in this contact form.

Please let us know if any questions come up or if you don’t hear from the lender soon.

This interesting report came across the wires from the AP today. Here is an excerpt:

WASHINGTON – The Senate on Thursday passed a bipartisan package of tax breaks and other steps designed to help businesses and homeowners weather the housing crisis.

The measure passed by an impressive 84-12 vote, but even its supporters acknowledge it’s tilted too much in favor of businesses such as home builders and does little to help borrowers at risk of losing their homes.

The plan combines large tax breaks for homebuilders and a $7,000 tax credit for people who buy foreclosed properties, as well as $4 billion in grants for communities to buy and fix up abandoned homes.

The measure, titled the Foreclosure Prevention Act, will be significantly redrawn by House critics who say it favors businesses such as home builders instead of borrowers.

“Quite candidly, what we’ve done does not quite live up to the title,” said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and the measure’s top sponsor. “We have more work to do. We do not do enough in preventing more foreclosures in the country.”

Democrats failed to win approval of ideas such as giving people threatened with losing their homes the right to seek more favorable loan terms from their lenders in bankruptcy courts. At the same time, a proposal to have the government back up refinanced loans for people facing foreclosure has yet to win GOP support.

A loan modification is the process in which a lender changes the terms of a loan. The goal of a loan modification is to help a borrower avoid foreclosure. Lenders are never anxious to make less money on a mortgage so normally the only time the agree to modify the terms of a loan is when they are forced to choose between that option and an even more expensive option for them like foreclosing on a home.

In order to seek a loan modification borrowers should contact their lender and request a modification. But because it is so difficult to obtain a loan modification some borrowers seek professional help in the process. Professional loan modification companies use their legal expertise and experience to assist borrowers in obtaining a loan modification. As with any service, it pays to shop around while investigating loan modification companies. Scroll through the advertisements below to check out the web sites for some loan modification companies that might be worth looking at:

Good luck in your loan modification efforts.
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There was an interesting article in Forbes.com recently on how FHA and private banks work together. Here is an excerpt:

Washington, D.C. -

If Congress gets its way, the Federal Housing Administration’s mission will be greatly expanded, allowing it to insure as much as $300 billion in additional mortgages to help struggling homeowners refinance.

That raises a few important questions: How good is the FHA at keeping borrowers out of foreclosure? How will it handle the heavy load of insured loans that do go bad?

Answering the first question is surprisingly tough, say housing finance experts. That’s because less than three years ago, the FHA issued new rules designed to keep homeowners out of foreclosure. It’s too soon to tell how they’ve worked.

The new rules provide for lenders to lose three times the amount of any FHA mortgage insurance benefit they claim unless they first try to work things out with borrowers in default, by, for example, modifying loan terms. The results of this new, effectively mandatory workout regimen–similar to what some in Congress are calling for now for private loans–aren’t in yet.

more…

The results of the pending presidential vote will likely have a major impact on how much the federal government is willing to assist homeowners going forward. John McCain wants the government to assist homeowners and potential buyers less than the Bush administration, and far less than the democrats want. Here is an excerpt from a recent article at SFGate.com:

Partisan politics aside, presumptive Republican nominee John McCain proposed something March 25 that no other major presidential candidate has advocated in decades: Raising minimum down-payment levels for home mortgages.

No more zero-down deals. No more “piggyback” plans that combine 90 percent first loans with 10 percent seconds. No more “down payment assistance” schemes where sellers indirectly supply all or most of the cash needed for the buyer’s down payment.

Even the 3 percent minimum required by the Federal Housing Administration would be raised under McCain’s plan. That puts him squarely at odds with the Bush administration and Democratic leaders in the House and Senate, who are negotiating reform legislation that would cut FHA’s minimum to zero – favored by the House – or 1.5 percent, favored by the Senate.

Proponents of low FHA down payments say that they are necessary to allow moderate-income families to purchase first homes and that if properly underwritten and serviced, they do not lead to extraordinarily high default or foreclosure rates.

McCain also said the giants of the mortgage industry – congressionally chartered Fannie Mae and Freddie Mac – “should never insure loans when the homeowner clearly does not have skin in the game.” He did not specify how much skin would be needed.

McCain’s rationale on tightening up down payments: He thinks a key contributing factor to the current national mortgage crisis was the tiny – or nonexistent – equity contributions required by lenders during the boom years. When the boom fizzled and home values fell, many borrowers found themselves in negative equity positions, owing more on their mortgages than the market value of their homes.

While the FHA loan limits have been increased, banks are not always thrilled about lending the higher amounts. A recent article in the WSJ online discussed this issue. Here is an excerpt:

Demand for FHA loans has jumped as other types of mortgages have become more expensive and harder to obtain.

J.P. Morgan Chase & Co.’s home-mortgage unit this week informed lenders that sell loans to the big bank that it will require “price adjustments” on the new, larger variety of FHA loans. The adjustments will add about half a percentage point to the interest rate on those loans, mortgage executives said. A spokeswoman for J.P. Morgan Chase declined to comment.

Lou Barnes, a mortgage banker at Boulder West Financial Services, Boulder, Colo., said other big lenders appear to be making price adjustments roughly in line with those announced by Chase. Mr. Barnes said he could offer a rate of about 6.375%, with no fees or “points” paid to reduce the interest, on the new “jumbo” FHA loans, compared with about 5.875% on smaller FHA loans.

Kevin W. Lynch, a mortgage broker at A. Anderson Scott Mortgage Group in Rockville, Md., said he has been quoted rates of nearly 7% on jumbo FHA loans. The loans are so expensive they “aren’t going to sell,” Mr. Lynch said. “It’s a waste of everybody’s time.”

The higher rates largely reflect muted demand from investors for securities backed by jumbo FHA loans, traders say. Those securities are expected to be less actively traded than ones backed by smaller FHA loans, and the larger loans may be apt to refinance faster, reducing the value to investors.

Meanwhile, many banks also are requiring minimum credit scores for borrowers seeking FHA loans. The FHA doesn’t set a minimum, but many lenders recently have begun requiring scores of at least 580 on the standard scale of 300 to 850.

That is shutting out some people who otherwise would qualify for an FHA loan, said Daniel H. Jacobs, chief executive of 1st Metropolitan Mortgage, a nationwide broker based in Charlotte, N.C.

At a time when Congress wants the FHA to provide more help to the mortgage market, “this is taking a major step backwards,” Mr. Jacobs said.

Here is the relevant portion from the a recent AP article on the subject:

The measure will contain a broader rewrite of the FHA that permanently raises the dollar limit on mortgages that FHA can insure to $550,000 in the most costly real estate markets. The economic stimulus bill approved by Congress in February temporarily raised the limit to from $362,790 to $729,750.

Republicans rebuffed efforts by Democrats and the White House to reduce down payments on FHA-insured loans.

The most costly element of the bill would allow home builders and other companies that are presently losing money to reclaim taxes paid up to four years ago instead of the two-year period currently permitted.