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.
