RISMEDIA, Dec. 10, 2007-Yesterday afternoon, President Bush outlined steps the Administration is taking to help American homeowners struggling with subprime mortgages and called on Congress to join him in delivering relief to up to 1.2 million homeowners in need. Here, we provide a closer look and what some of those closest to the issue are saying.
In August, President Bush announced measures to help many struggling homeowners, including directing Treasury Secretary Henry Paulson and Housing and Urban Development (HUD) Secretary Alphonso Jackson to work with lenders, loan servicers, mortgage counselors, and investors on an initiative to help struggling homeowners.
Secretaries Paulson and Jackson responded by assembling a private-sector group called the HOPE NOW Alliance. HOPE NOW is an example of government bringing together members of the private sector to voluntarily address a national challenge – without taxpayer subsidies or government mandates. Today, the President announced that these efforts have yielded a promising new source of relief for American homeowners.
President Bush announced that representatives of HOPE NOW have developed a plan under which up to 1.2 million homeowners could be eligible for assistance.
Many individual homeowners feeling financial stress have adjustable rate mortgages, which typically start with a lower interest rate and then reset to a higher rate after a few years. The HOPE NOW plan is designed to help subprime borrowers who can at least afford the current, starter rate on a subprime loan, but will not be able to make the higher payments once the interest rate goes up.
HOPE NOW members have agreed on a set of new industry-wide standards to provide systematic relief to these borrowers in one of three ways:
1. Refinancing an existing loan into a new private mortgage;
2. Moving them into an FHASecure loan; or
3. Freezing their current interest rates for five years.
Since the President’s announcement in August of actions to assist homeowners, the Administration has moved forward with the following:
1. A new initiative at the Federal Housing Administration (FHA) called FHASecure. FHASecure expands the FHA’s ability to offer refinancing by giving it the flexibility to work with homeowners who have good credit histories but cannot afford their current payments. In just three months, the FHA has received over 120,000 refinancing applications and has already helped more than 35,000 people refinance. By the end of 2008, the FHA expects this program to help more than 300,000 families.
The FHA is also on track to start charging mortgage insurance premiums based on the individual risk of each loan, using traditional underwriting standards. Risk-based pricing will expand access and enable FHA to help even more low-to-moderate income families who could not otherwise qualify for prime-rate financing.
2. Secretaries Paulson and Jackson have assembled the private-sector HOPE NOW alliance. In addition: HOPE NOW recently mailed hundreds of thousands of letters to borrowers falling behind on their payments. In the past, some lenders and mortgage servicers may not have contacted borrowers until after their loans were delinquent. The Alliance is trying to reach families early, before their mortgage problem becomes overwhelming. HOPE NOW has supported a toll-free hotline, 1-888-995-HOPE, which is available 24-hours a day to provide mortgage counseling in multiple languages.
3. The Federal government is taking several regulatory actions to make the mortgage industry more transparent, reliable, and fair. Later this month, the Federal Reserve intends to announce stronger lending standards that will help protect borrowers. In addition, HUD and the Federal banking regulators are each taking steps to improve disclosure requirements so that homeowners can be confident they are receiving complete, accurate, and understandable information about their mortgages.
To aid in this initiative, according to the Announcement, members Of Congress would need to:
1. Pass legislation to modernize the FHA. In April 2006, President Bush first sent Congress an FHA modernization bill that would increase access to FHA-insured loans by lowering downpayment requirements, allowing the FHA to insure bigger mortgages in high-cost states, and expanding FHA’s authority to price insurance fairly, with risk based premiums. The House passed the bill with more than 400 votes last year. This year, the House passed it again, yet the Senate has not acted.
The liquidity and stability that FHA provides the market are needed now more than ever, and the President urges the Senate to move as quickly as possible. This bill could allow the FHA to help 250,000 additional families by the end of 2008.
2. Congress needs to temporarily reform the tax code to help homeowners refinance during this time of housing market stress. Under current law, if the value of your house declines and your bank forgives a portion of your mortgage, the tax code treats the amount forgiven as taxable income. The House recently passed this tax relief with bipartisan support, and the Senate should pass relief as soon as possible.
The Administration has also proposed allowing cities and States to issue tax-exempt mortgage bonds to refinance existing loans, and the President calls on Congress to approve this temporary measure quickly. Under current law, cities and states can issue tax-exempt bonds to finance new mortgages for first-time homebuyers, and this measure would make it easier for State housing authorities to help troubled borrowers.
3. Congress needs to pass funding to support mortgage counseling. Non-profit groups like NeighborWorks provide an essential service by helping homeowners find affordable mortgage solutions and prevent foreclosures. The President’s FY 2008 Budget requests $120 million for NeighborWorks and another $50 million for HUD’s mortgage counseling program. Congress has had these requests since early February, and it needs to stop delaying and get this funding to the President’s desk.
4. Congress needs to pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. GSEs provide liquidity to the mortgage market that benefits millions of homeowners, and it is vital that they operate safely and soundly. The President has called on Congress to pass legislation that strengthens independent regulation of the GSEs and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start, and the Senate needs to pass legislation soon.
While these initiatives were clearly lined up, reactions have been mixed those working with homeowners in distress.
NAR released an official announcement, citing their support for the Administration’s efforts.
“The dream of homeownership should not turn into a family’s worst nightmare,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, California. “As the leading advocate for housing issues, NAR has been working with Congress and the administration to protect homeowners who may be facing foreclosure as the result of predatory lending practices and as the interest rates on many subprime loans reset. The loan modification program introduced by President Bush and U.S. Treasury Secretary Henry Paulson is a good first step in helping deserving families keep their homes.”
NAR has been working with Congress throughout 2007 to modernize Federal Housing Administration programs that will once again make the FHA a viable mortgage product and help protect many current and future homeowners by offering a secure alternative to subprime loans. NAR has also been pushing Congress to reform Fannie Mae and Freddie Mac and increase their conforming loan limits, which will not only help home buyers but also will help improve liquidity in the lending industry.
“We are pleased that the administration has taken action today and are hopeful that Congress will now move quickly to approve FHA modernization and GSE reform,” Gaylord said.
Colleen Hernandez, president and executive director, of the Homeownership Preservation Foundation, a national non-profit organization that operates (888) 995-HOPE to assist troubled homeowners, also issued a statement in response to President Bush’s announcement on housing issues.
“Today’s developments underscore the importance of using trained mortgage counselors to understand how President Bush’s announcement impacts individual homeowners…Our counselors remain focused on today’s announcement as details of the plan continue to emerge…We encourage Americans, whether or not they believe that they qualify for the program introduced today, to contact their mortgage company or to take advantage of our trained counselors, reachable at (888) 995-HOPE, who can help them to understand these developments.
The National Association of Home Builders (NAHB) also expressed their support for the new plan.
“The Administration’s plan to help struggling borrowers stay in their homes is one of several steps that can help stabilize the housing market and reassure consumers and investors in the mortgage market,” said NAHB President Brian Catalde, a home builder from El Segundo, California. “We applaud this action and urge Congress to follow up quickly on pending legislation that would provide additional help in easing the credit crunch and restoring confidence in the marketplace.”
Specifically, Catalde called on Congress to:
– Enact FHA reform legislation to allow the agency to insure more home loans and help subprime borrowers.
– Strengthen regulatory oversight of Fannie Mae and Freddie Mac and allow them to purchase mortgages in high-cost markets.
– Enact legislation that eliminates taxes on mortgage debt that is forgiven as part of a loan workout.
More specifically, NeighborWorks® America applauds this important step support, as these efforts will help homeowners stay in their homes and preserve the nation’s communities.
The organization notes that there are many ways to assist homeowners facing financial difficulties. Loan modifications and interest rate freezes for homeowners who are current on their mortgages and will need help once their mortgage interest rates reset is just one way to help reduce the number of foreclosures.
Apprehension also followed this news, with sixty-one economists, signing a letter in conjunction with the non-profit advocacy group FreedomWorks opposing the “bail out.”
The letter warns that: “Legislation to create new underwriting standards will reduce competition and restrict consumer access to credit. Additionally, efforts to bail out or shore up lending institutions create a moral hazard that would slow the adjustments required in the marketplace…. These [bail out] proposals would fundamentally alter the workings of the mortgage market, leaving consumers with fewer choices when seeking to buy a home and potentially increasing taxpayer exposure for bad loans.”
Former U.S. House Majority Leader Dick Armey, a former economics professor who now serves as Chairman of FreedomWorks, commented: “This letter should give policymakers pause in their rush to pass bailout schemes for the real estate market. Most of the policy proposals before Congress would arbitrarily rewrite private contracts, reward speculative lending and borrowing, and expose taxpayers to additional risks. Though it’s understandable that legislators might want to respond to homeowner difficulties, the proposed regulations only serve to decrease credit availability for the poor and disadvantaged. Today’s letter adds an important new voice to the debate, that of many of the nation’s professional economists, who are calling on Congress to act responsibly and allow the subprime market to work through the current repricing of mortgage-backed securities.”
To find out more about how you can help struggling homeowners and stand out in your market visit http://rismedia.com/2007-12-06/who-the-subprime-mortage-plan-will-help/
To view the original article on President Bush’s Plan, click here.