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A message from the NAMB/SOUTHEAST Advisory Committee

National Mortgage Professional
Jun 15, 2008

Flood of patchwork proposals pushed to mend national housing crisis: Government works feverishly to rectify housing and foreclosure situationsMortgagePress.comHUD, VA, Congress, FHASecure, FHA, Chris Dodd, Richard Shelby, HR 5818, HR 5579,Emergency Mortgage Loan Modification Act (Pictured to the right) Sens. Chris Dodd and Richard Shelby, Chairman and Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs, announce their bipartisan agreement to help address the nations housing crisis Over the past few weeks, various branches of the U.S. government have drafted legislation to save the struggling American homeowner from the horrors of foreclosure and mounting credit debt. The U.S. Senate, House of Representatives, Federal Housing Administration (FHA), and the U.S. Department of Housing and Urban Development (HUD) are all in the process of pushing programs to decrease the numbers of foreclosures filed and keep thousands of Americans in their homes. House Financial Services Committee passes HR 5818 and HR 5579 The House Financial Services Committee has passed the Neighborhood Stabilization Act of 2008 (HR 5818) and the Emergency Mortgage Loan Modification Act of 2008 (HR 5579). HR 5818 would establish a $15 billion HUD loan and grant program for states to purchase and rehabilitate vacant, foreclosed homes for resale or rental. HR 5818 proposes $7.5 billion in non-recourse, zero-interest loans to states to finance acquisition and rehabilitation costs. The loans would have to be repaid within two years for homeownership properties and five years for rental properties, with 20 percent of appreciation at resale being paid back to the federal government. The bill also proposes $7.5 billion in grants to states to cover operating costs while the property is being stabilized. Each states loan and grant would be based on the state's percentage of nationwide foreclosures over the last four calendar quarters, adjusted for the state's relative median home price. States would be able to use government entities, such as housing authorities, to purchase, rehabilitate and sell/rent these properties. Homes purchased for resale would be required to be sold to families having incomes not exceeding 140 percent of area median income (AMI). Properties purchased for rental would be required to serve families having incomes at or below AMI. Lastly, the bill would provide eviction protections to tenants in foreclosed properties. The Emergency Mortgage Loan Modification Act of 2008, HR 5579, would: 1. Establish a standard for loan modifications or workout plans for pools of certain residential mortgage loans; 2. Create a duty for the servicers of such pooled loans to maximize recovery of proceeds for the benefit of all investors and holders of beneficial interests in the pooled loans, and not to any individual party or group of parties; 3. Deem the loan servicer to be acting on behalf of the securitization vehicle in the best interest of all such investors and holders if the servicer makes certain loss mitigation efforts for a loan in or facing payment default in the reasonable belief that such efforts will maximize the net present value to be realized over that which would be realized through foreclosure; and 4. Declare that, absent specific contractual provisions to the contrary, a servicer acting in a manner consistent with such duty shall not be liable to specified persons for entering into a qualified loan modification or workout plan for loss mitigation purposes. Bush administration to implement FHASecure expansion using flexible premium pricing The Bush administration has issued final guidance that will permit its flagship mortgage insurance program to assist more homeowners who are struggling to keep up with their high-cost sub-prime, adjustable-rate mortgages. To ensure taxpayers do not assume the cost of this expansion, the FHA will implement a fair and flexible premium pricing structure beginning Monday, July 14. Modifications to FHASecure will help homeowners who can no longer afford their mortgages and missed up to three monthly mortgage payments over the past year. As an alternative to foreclosure, eligible borrowers can refinance with FHA and lenders can voluntarily write down the outstanding sub-prime mortgage principal balances. Implementation of FHAs new premium pricing plan on July 14 will coincide with the start date to expand FHASecure. "With a flexible premium structure, FHA can fulfill its mission of assisting families who do not have access to prime-rate financing," said HUD Deputy Secretary Roy A. Bernardi. "Fair pricing will allow FHA to reach more troubled homeowners without placing excessive risk on its insurance fund." Currently, FHA has a "one size fits all" premium structure that charges borrowers 1.50 percent of the loan balance upfront and 0.50 percent annually, regardless of their credit standing. FHA feels this approach does not treat borrowers equitably and may put the FHA insurance fund at risk. Under the new rule, the FHA's upfront mortgage insurance premium will range from 1.25 percent to 2.25 percent. Borrowers must continue to adhere to FHAs strict underwriting criteria. By charging different premiums, FHA will operate like most other insurance companies. This premium structure will preserve lower premium costs for FHAs traditional borrowers, including low-income and minority families who have a strong credit history and save for a downpayment. Senate Committee on Banking, Housing and Urban Affairs announces bipartisan foreclosure legislation In April, Sens. Chris Dodd (D-CT) and Richard Shelby (R-AL), chairman and ranking member of the Senate Committee on Banking, Housing and Urban Affairs, announced that they had developed a bipartisan agreement to help address the nation's housing crisis, the Foreclosure Prevention Act of 2008 (S 2636). The legislation contains important provisions to provide counseling to Americans facing foreclosure, help local communities deal with properties in their neighborhoods that have been abandoned or foreclosed upon, and reform the FHA so that more Americans have access to affordable, safe, government-backed loans, among other measures. "Sen. Shelby and I have worked diligently & to develop legislation that will help provide solutions to the housing crisis, which is forcing millions of homeowners into foreclosure, freezing up the liquidity in our markets and causing a tightening of credit," said Dodd. "The package that we agreed to is not perfect, nor will it solve all of the problems that the economy and American homeowners are facing today. But it is an important step, and sends a strong message to the American people that Congress is willing to put aside our partisan differences and come together to tackle the challenges at hand." The Bush administration has unexpectedly turned its back on the Senate foreclosure prevention bill, arguing that it would "do more harm that good by bailing out lenders and speculators." A detailed summary of the legislation is below. FHA modernization To ensure that additional families can access the FHA program, which provides safe, fixed-rate mortgages, significant FHA reform is included to modernize, streamline and expand the reach of the FHA program. Under this bill, the FHA loan limit is increased from 95 percent to 110 percent of area median home price with a cap at 132 percent of government sponsored enterprise (GSE) limit (currently, $550,000), allowing families in all areas of the country to access homeownership through FHA. Downpayments of 3.5 percent will be required for any FHA loan and counseling requirements are enhanced to help provide for stable homeownership. Assisting communities devastated by foreclosures Homes that have been foreclosed upon and are sitting unoccupied lead to declines in neighboring house values, increased crime and significant disinvestment. To ensure that communities can mitigate these harmful effects of foreclosures, $4 billion is provided to communities hardest hit by foreclosures and delinquencies. These supplemental Community Development Block Grant funds will be used to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in house values of neighboring homes. Providing pre-foreclosure counseling for families in need To help families avoid foreclosure, this bill provides $100 million in additional funding for housing counseling. These funds will be distributed by the Neighborhood Reinvestment Corporation by the end of 2008, to ensure families can quickly get the help they need. As many as 250,000 additional families connect with their mortgage servicer or lender to explore options that will keep them in their homes as a result of these counseling funds. Enhancing mortgage disclosure To ensure that consumers are provided with timely and meaningful disclosures in connection with mortgages, the bill expands the types of home loans subject to early disclosures (within three days of application) under the Truth-in-Lending Act (TILA), including refinancings. The bill requires that disclosures be provided no later than seven days prior to closing, so borrowers can shop for another loan if not satisfied with the terms. The bill requires a new disclosure that informs borrowers of the maximum monthly payments possible under their loan, and also increases the range of statutory damages for TILA violations from the current $200 to $2,000 and $400 to $4,000. Preserving the American dream for our nation's veterans To assist returning soldiers in avoiding foreclosure, this bill lengthens the time a lender must wait before starting foreclosure from three months to nine months after a soldier returns from service, and also provides returning soldiers with one year relief from increases in mortgage interest rates. In addition, the Department of Defense is required to establish a counseling program to ensure veterans and active service members can access assistance if facing financial difficulties. Also included is a provision that increases the Veterans Affairs loan guarantee amount, so that veterans have additional homeownership opportunities. Standard property tax deduction To make tax relief available to all American homeowners, the bill will provide a standard deduction$500 for single filers and $1,000 for joint filersfor the 28.3 million non-itemizers who pay property taxes. Present law allows only those who itemize deductions on their federal tax returns to deduct state and local property taxes from their income. Mortgage revenue bonds To provide for refinancing of sub-prime loans, mortgages for first-time homebuyers and multifamily rental housing, $10 billion of federal tax-exempt private activity bond authority is included in this bill. The measure also exempts interest earned on the bonds from the alternative minimum tax. Extension of net operating loss carryback To aid homebuilders and other businesses hit hardest by the economic slump, this bill will extend a law allowing corporations to apply excess net operating losses to tax returns from prior profitable years and receive any applicable refunds. For 2008 and 2009 losses, the provision would extend the "net operating loss carryback" to four years (back to 2004 and 2005, respectively) from the two years currently in law. Measures to prevent companies from abusing the intent of the provision are also included. Tax credit for purchase of homes in foreclosure To encourage the purchase of homes already in foreclosure and of homes on which foreclosure has been filed, this bill creates a $7,000 tax credit for buyers of such homes, to be claimed over two years. Homes in foreclosure bring down the value of property nearby. Encouraging the purchase of more homes in foreclosure will restore property values for all homeowners.
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