RISMEDIA, Sept. 21, 2007-The American Homeowners Grassroots Alliance (AHGA) hailed two events this week that may help reduce the mortgage financing crisis and curb the declining values of American homes in many areas. In cutting the federal funds rate by half a percent to 4.75%, the Federal Reserve Board sent a strong signal that it is prepared to take all steps necessary to stem a growing risk of recession. A potential recession, caused in large part by the mortgage finance crisis, could further undermine home values. Stocks surged immediately after the announcement, with the Dow rising more than 330 points, or 2.5%. In the best trading day since 2003, the NASDAQ also shot up 2.7% while the S&P 500 closed almost 3% higher.The lower rate should translate into some reduction in mortgage interest rates, which will help lower future payments for homeowners who are facing impending rate adjustments on their adjustable rate loans. It will also make it possible for others with adjustable rate loans to refinance into fixed rate products, and make more homes affordable for first time and move up buyers.
The U.S. House of Representatives today overwhelmingly passed the “Expanding American Homeownership Act of 2007,” which will expand and strengthen the Federal Housing Administration’s (FHA’s) federally insured loan program. The legislation, which must still pass the Senate, would:
– Allow FHA to make zero or lower down payment loans for borrowers that can afford mortgage payments, but who lack the cash for a substantial down payment.
– Double the current funding level for housing counseling for subprime home buyers and borrowers late on mortgage loan payments.
– Direct FHA to provide mortgage loans to borrowers at higher risk, but who are still qualified using prudent lending standards.
– Expand and improve the FHA reverse mortgage loan program by raising loan limits, removing the loan cap to avoid program shutdowns, and by reducing the maximum fee lenders can charge for these loans.
– Help maintain affordable housing by raising FHA multifamily loan limits and enhancing the sale of foreclosed FHA rental housing loans to localities.
– Set aside up to $300 million a year from the bill’s surplus for affordable housing.
– Raise FHA single family loan limits, which now bar loans above 95% of the median home price in each local area. This rule has shut FHA out of higher cost home markets. New FHA loan limits in those areas will be the lower of 125% of the local area median home price or 75% of the national GSE conforming loan limit.
– Give HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”
On the Senate side Senator Charles Schumer announced last week that he would introduce legislation that would allow Fannie MAE and Freddie Mac to buy an additional $145 billion in mortgages. The two GSEs would have to use 50% of that amount to refinance ARMs of qualified borrowers which are scheduled to reset before December, 2009. It would also raise the conforming loan ceiling in expensive areas from $417,000 to the lesser of the area’s median home price or $626,000. Senate Banking Committee Chairman Christopher Dodd and House Financial Services Committee Chairman Barney Frank have also supported a stronger role for Fannie and Freddie in mortgage markets.
Given the action in the House, and much support for similar positive action in the Senate, some legislation providing for an expanded role for FHA and/or the GSE’s to help address the mortgage crisis is likely to emerge from Congress. Unfortunately the Bush administration has opposed lifting caps on GSE and FHA mortgage loans, although it is implementing FHA reforms that will allow it to back refinancing for qualified borrowers who are already in default.
“We hope that President Bush will reconsider his opposition to these proactive initiatives. They are intended to protect the homes of millions of American homeowners, many of whom are not financially sophisticated and were duped into risky and unsuitable mortgage loans.” said AHGA President Bruce Hahn. “We respect President Bush’s free market orientation, but we need to address this crisis now. Congress can consider returning to previous lending standards if the mortgage lending crisis can be resolved.”
The American Homeowners Grassroots Alliance is a nonprofit consumer advocacy organization dedicated to assisting homeowners better understand the significant economic issues affecting their home and their lifestyle, and empowering them to make their voices heard by state and federal officials.
For more information, visit http://www.americanhomeowners.org.