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American
Homeowners Grassroots Alliance
Legislative Alert!
The U.S. House of
Representatives Majority Whip’s office told us on Tuesday, May 6, that
this week the U.S. House of Representatives is expected to vote on two
pieces of legislation that will help stem the growth in home
foreclosures and plummeting home values. One proposal will expand the
Federal Housing Administration (FHA) program to help homeowners at risk
of foreclosure refinance into affordable mortgages and the other will
provide loans and grants to states and cities to deal with problems
associated with large numbers of foreclosures. According to estimates
from the Congressional Budget Office, the FHA program will cost $2.7
billion and help 500,000 borrowers refinance into FHA-backed mortgages.
The $15 billion loan and grant programs will enable cities and states to
buy up large numbers of owner-vacated foreclosed homes.
The vote could be as
early as Wednesday May 7. We
urge you to contact your representative immediately and ask them to
support this important legislation!
Click on
Contact Your Federal
and State Legislators to look up your
representative’s email, phone and fax numbers.
The background
information below can be copied and selectively modified as you see fit
for use in your email or fax, and can also be used for talking points if
you call your representative’s office. For those interested in more
details, a summary of the
FHA Housing
Stabilization and Homeownership Retention Act, the proposal containing
the provisions that most directly and immediately impact homeowners at
risk of foreclosure, appears at the bottom of this alert.
H.R. 5830, the FHA
Housing and Homeowner Retention Act, will expand the FHA program to help
refinance at-risk borrowers into viable mortgages,
and also requires the Federal Reserve Board to conduct a study on the
need for an auction or bulk refinancing mechanism. The second measure,
H.R. 5818, the Neighborhood Stabilization Act of 2008,
will provide loans and grants to states and cities to deal with problems
associated with large numbers of foreclosures. The legislative package
includes a $300 billion expansion of Federal Housing Administration loan
guarantee programs and a $7,500 tax credit for first-time home buyers.
To encourage
Republican and Administration support it also includes provisions
updating FHA loan guarantee programs and stricter independent oversight
of Fannie Mae and Freddie Mac. To reduce the risk of defeat and/or a
successful veto, several
controversial proposals were not included in the package. Among them is
a proposal to allow bankruptcy judges to modify mortgage loan terms and
balances. Bankruptcy judges can modify the terms, rates,
and balances of every other kind of consumer and business loan when it
is the mutual interest of both lenders and debtors, but they currently
can’t modify mortgage loans on primary residences.
The proposals will
clearly help mitigate the growing number of foreclosures. First time
buyers are beginning to account for a growing share of home sales in
many markets, and the $7,500 tax credit will help bolster the confidence
of many first time buyers who may fear further drops in home values.
Many devastated urban markets will be helped by the loan and grant
program. Although lenders have not participated in significant numbers
in earlier programs that have encouraged them to voluntarily modify
mortgage terms, they may become more willing to participate in the FHA
program as their balance sheets continue to deteriorate. If lenders
don’t participate and the housing market is under even more duress by
this summer, the bankruptcy reform bill will stand a much better chance
of passing than it does right now. When judges have the latitude to
modify home mortgage loans in the same way they can modify all other
forms of indebtedness, lenders will be looking for alternatives to the
discretion of bankruptcy judges. The
new FHA program will be in place,
and will probably be a better alternative
for most lenders than forcing homeowners into bankruptcy
at that point.
Please act now! It will only take a few minutes of your time to contact
your U.S. Representative, and you’ll be helping homeowners across the
nation, and perhaps someone you know.
American
Homeowners Grassroots Alliance
Serving the interests of the nation's 75 million homeowners and future
homeowners since 1984.
The American
Homeowners Grassroots Alliance is a
nonpartisan consumer advocacy organization dedicated to assisting the nation's
75 million homeowners understand significant policy issues affecting homeowners
and homeownership, and empowering homeowners to make their voices heard by
state and federal officials.
Visit our web site
http://www.americanhomeowners.org.
Contact us at: 6776 Little Falls Road, Arlington, VA 22213-1213. Direct
Dial: 571-214-1013; Headquarters: 703-536-7776
FHA Housing Stabilization and
Homeownership Retention Act
Summary of H.R. 5830 (May 1, 2008)
Summary of the Expanded FHA
Refinance Program.
This voluntary program would permit FHA to provide up to $300 billion in new
guarantees to help refinance at-risk borrowers into viable mortgages. This
$300 billion is the total amount of outstanding loans that may be insured under
the program. The government would only have liability if a borrower
defaults and the amount recovered in foreclosure is below the outstanding
principal.
In exchange for the acceptance of a
substantial write-down of principal, the existing lender or mortgage holder who
chooses to participate would receive a “short payment” (i.e. a payment for less
than the outstanding balance as payment in full) from the proceeds of a new
FHA-guaranteed loan if
the new loan would have terms that the borrower can reasonably be expected to
pay and the borrower agrees to share future home appreciation with the
government. In short, the program would provide refinancing assistance to
allow families to stay in their homes, protect neighborhoods and help stabilize
the housing market.
Under the program, a borrower or
existing loan servicer of an eligible loan would contact an FHA-approved lender,
who would determine the size of a loan that would be consistent with the
requirements of the program and that the borrower could reasonably repay.
If the current lender or mortgage holder agrees to a write-down that is
sufficient to meet the requirements of the program and make the new loan
affordable, the FHA-lender will pay off the discounted existing mortgage.
In addition to a first lien, the
government will retain a share of future home-price appreciation to help defray
the government’s costs and prevent unjust enrichment (e.g., borrower flipping).
When the borrower sells the home or refinances the loan, the borrower will pay
from any profits the higher of (1) an
ongoing exit fee equal to 3 percent of the original FHA loan
balance; or (2) a declining percentage of any net proceeds attributable to home
appreciation (i.e., from 100 percent in year one to 50 percent in year four and
thereafter minus the fees the borrower has paid into FHA).
Eligibility Requirements for
Existing Loans (Requires All of the Following):
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Owner-occupied principal residences only (no
investors, speculators or second homes), and borrowers must certify that
they do not own any other homes;
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Existing senior loan being refinanced must
have been originated on or before December 31, 2007;
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To remove any incentive for borrowers to
“purposely default,” the borrower must have had a mortgage debt-to-income
ratio of no less than 35 percent as of
March 1, 2008, and must certify that he/she has not
intentionally defaulted on existing mortgage(s) and did not obtain the
existing loan fraudulently;
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Participating mortgage holders/investors must
waive any penalties or fees on the existing mortgage and must accept
proceeds of the new loan as payment in full; and
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Existing mortgage holders/investors must
accept their losses – taking substantial write-downs sufficient to: (1)
establish a 3 percent loan loss reserve for the FHA; (2) pay the origination
and closing costs for the new loan up to 2 percent; and (3) bring the
loan-to-value ratio on the new FHA-guaranteed loan down to no greater than
90 percent of property’s current
appraised value, resulting in a substantial reduction in debt service to the
borrower. Accordingly, to qualify mortgage holders would need to accept a
substantial write-down, accepting as payment in full no more than 85 percent
of the property’s current appraised value.
Requirements for New FHA-Insured
Loans:
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New FHA loans must be properly underwritten
and must be based on current
appraised value of the house and borrower’s documented income
(borrowers with higher – but not disqualifying – debt levels would need to
make six months of timely payments at the new payment level to qualify for
the guarantee);
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New FHA loan must extinguish all existing
liens and substantially reduce the borrower’s mortgage debt service;
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New FHA loans under this program must be
within the FHA loan limits now in effect under the stimulus for the duration
of this program;
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Oversight Board will set reasonable limits on
loan fees and interest rates; and
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To reduce costs to the government – and avoid
inappropriate enrichment to the borrower – the government will retain a
share of the borrower’s future profits. When the borrower sells the home or
refinances the loan, the borrower will pay from any profits the higher of
(1) an ongoing exit fee
equal to 3 percent of the original FHA loan balance; or (2) a declining
percentage of any net proceeds attributable to home appreciation (i.e., from
100 percent in year one to 50 percent in year four and thereafter minus the
fees the borrower has paid into FHA).
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Borrowers with the new FHA loan will be
prohibited from taking out a second mortgage for five years (except as
necessary to maintain the property).
Oversight Board.
The program will be overseen by a “Refinance Program Oversight Board” consisting
of the Secretary of Treasury, the Secretary of HUD, and Chairman of the Federal
Reserve.
Coordination of Existing
Lien-Holders.
The Oversight Board will be authorized to take action to facilitate coordination
among different existing lien-holders; and shall be empowered to establish a
formula for compensating and a mechanism for obtaining the voluntary waiver of
all lien holders.
Separate FHA Fund.
To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in
a separate fund in FHA – and will be permitted to be resold through GNMA.
Improving FHA Capacity.
The Oversight Board will take actions as necessary to increase FHA’s capacity,
including:
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Treasury, Federal Reserve and HUD may sharing
employees to improve FHA capacity;
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Contracting for the establishment of
underwriting criteria, pricing standards, and other factors relating to
eligibility;
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Contracting for independent quality reviews
of the underwriting of these mortgages; and
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Increasing HUD personnel.
Auction or Bulk Refinance Study.
The Federal Reserve Board will be required to conduct a study of the need for,
and efficacy of, an auction or bulk refinancing mechanism and submit a report to
Congress within 60 days of enactment.
Increased Fraud
Prevention/Oversight.
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Independent quality reviews will be
established to determine underwriter compliance, and rates of delinquency,
claims and losses;
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Monthly reports will be submitted to
Congress; and
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Annual audit of the program will be
conducted.
Sunset.
The program will run for 2 years (with flexibility for additional 6 month
extensions not to exceed 2 more years).
Authorization for Foreclosure
Counseling & Legal Aid.
The bill would authorize $210 million dollars for foreclosure counseling,
including to veterans recently returning from active duty in the armed forces,
with at least $30 million targeted to low-income and minority homeowners and $35
million to assist with legal aid.
Office of Housing Counseling.
Establishes within HUD an Office of Housing Counseling that will conduct
activities relating to homeownership and rental housing counseling.
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Requires HUD to provide for the certification
of various computer software programs for consumers to use in evaluating
different residential mortgage loan proposals.
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Authorizes appropriation not to exceed $3
million for national public service multimedia campaigns for homeownership
counseling services for fiscal years 2008, 2009, and 2010.
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Requires HUD to provide financial and
technical assistance to States, local governments, and nonprofit
organization regarding the establishment and operation of related
educational programs, and authorizes appropriation of $45 million for each
of fiscal years 2008 through 2011.
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Directs HUD to study and report to Congress
on the root causes of the default and foreclosure of home loans.
Mortgage Fraud.
Authorizes appropriations of $31,250,000 to hire additional FBI agents and
Department of Justice prosecutors to combat mortgage fraud, and $750,000 to
support FBI interagency task forces in the areas with the 15 highest
concentrations of mortgage fraud.
VA Loans.
Increases conforming loan limits for VA loans.
Appraisals.
Requires enhanced appraisal standards and appraiser independence.
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