An article in Investor’s Business Daily recently pointed out the the FHA issue is likely to get a lot more national attention as the ’08 presidential campaigns ramp up:
The meltdown in subprime loans is a made-for-TV political extravaganza debuting just in time for election season — especially as more Americans keep losing their homes.
At least, that’s the way economist David Shulman sees it. He expects “show trials” before Democratic congressional committees to begin this winter, replete with testimony from distressed homeowners.
But so far the gloves have largely stayed on as regulators and lawmakers grapple with ways to help an estimated 2 million U.S. homeowners who have lost or are about to lose their homes — not to mention fix mortgage lending excesses that led to today’s debacle.
“A lot of it will be bipartisan, at least initially,” said Shulman, senior economist with the UCLA Anderson Forecast. “Both parties will try to show how sensitive they are to homeowners.”
The first stand-alone bill to address the mortgage crisis easily breezed through the House last month, expanding the ability of the Federal Housing Administration (FHA) to help struggling subprime borrowers.
The bill would give more power to the FHA, the federally insured loan program known for affordable fixed-rate mortgages. It would let the FHA give subprime borrowers lower rates and better terms. A Senate committee has passed a companion bill with a lower loan limit.
“The FHA reform bill has good bi-partisan support,” said Kurt Pfotenhauer, senior vice president of government affairs for the Mortgage Bankers Association. He says the FHA is the only real alternative at the moment for subprime borrowers now that the “private-label subprime market has disappeared.”
The Bush administration supports making it easier for the FHA to refinance adjustable rate mortgages — though not as easy as the Democrats would like.
Another bill giving borrowers relief passed unanimously in the House last week by voice vote and also got support from President Bush. It would waive taxes on mortgage debt forgiven as part of a mortgage workout.
This House bill also extends deductibility of mortgage insurance, making loans cheaper for those who have little equity in their homes or can’t put down 20%. Political observers expect the Senate to approve the bill.
The problem is, how many lenders will rework subprime terms? Only 1% of reset subprime adjustable rate mortgages were modified by lenders and servicers earlier this year, according to a recent report from Moody’s.
Attorneys general and bank regulators in 10 states have joined forces to push mortgage loan officials to rework loans to stave off foreclosures.
Also, Treasury Secretary Henry Paulson on Wednesday announced that 11 of the largest mortgage servicers, plus mortgage counselors, investors and trade groups, have formed a coalition to improve outreach to struggling homeowners.
“Their partnership, called Hope Now, has put together an aggressive plan to reach more homeowners and help them find a way to stay in their homes,” Paulson said in prepared remarks.
