Bill To Help Homeowners In Peril OK'd

Legislation Would Allow FHA To Guarantee Refinanced Loans For Delinquent Borrowers

(AP)  The Senate moved against the worsening mortgage crisis Friday, voting to make it easier for thousands of homeowners with ballooning interest rates to refinance into federally insured loans.

The legislation, approved 93-1, would allow the Federal Housing Administration to back refinanced loans for borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels.

The bill also tries to make FHA loans more attractive than risky subprime loans by accepting lower down payments and expanding the eligibility for counseling for homeowners having difficult with their mortgage payments.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to reset in the next year, jumping to much steeper rates that could cost borrowers their homes. The wave could crest during the presidential and congressional election campaigns next year, and politicians have been wrestling with what the government's response should be.

The Senate's proposed changes are especially important now, given the credit crisis that has made it much more difficult and more expensive for people to refinance or get financing to buy a home. Private lenders have been reluctant to make new loans.

Allowing the federal government to insure more and bigger loans should help provide some relief and ease the credit crunch.

The Senate's plan would give homeowners "the option of refinancing to an FHA-backed loan with the peace of mind that comes with it," said Senate Majority Leader Harry Reid, D-Nev. "And for future homebuyers, a fully backed FHA loan with honest, upfront terms, will help prevent crises like we now face."

Modernizing the FHA is Congress' first attempt at stand-alone legislation to ease the subprime mortgage mess. The House passed a bill similar to the Senate's back in September, but a final measure probably won't be ready for President Bush's signature until next year.

Meanwhile, the White House last week announced it had negotiated an agreement with mortgage companies to freeze interest rates for certain subprime mortgages for five years.

White House press secretary Dana Perino said the Senate bill "would give FHA some of the additional flexibility it needs to provide more families with a safe, affordable mortgage financing option." She said, however, that the president still has some concerns about the bill.

The Senate bill raises the maximum mortgage the FHA can insure in high-cost areas like California and the Northeast from $362,790 to $417,000 — the same level as loans backed by Fannie Mae and Freddie Mac.

The House would raise the maximum mortgage to $729,750 in high-cost areas, with the higher limit a point of contention between the House, Senate and the White House.

The Senate bill would also lower the FHA down payment requirement from 3 percent to 1.5 percent, depending on an assortment of factors, and make it easier for FHA loans to be used to buy condos.

"It is good before the Christmas season we have made a down payment on the solution to this problem," said Sen. Mel Martinez, R-Fla.

The legislation will help the FHA "be a source of salvation for those families who were tricked into unaffordable loans," said Sen. Charles Schumer, D-N.Y.

The only senator to vote against the bill was Sen. Jon Kyl, R-Ariz.

"With the mortgage market already in turmoil as a result of too many mortgages being made available to those who cannot afford them, now is not the time to relax standards even further and make taxpayers liable if borrowers default," Kyl spokesman Ryan Patmintra said.

Many homeowners have been looking for help from the government this year. Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association in the third quarter, a record 18.81 percent of them were past due. A record 4.72 percent of the loans entered into the foreclosure process during that period.

Modernizing the FHA "will have an immediate impact helping some distressed borrowers who are having trouble paying their current mortgages avoid foreclosure," said David G. Kittle, the association's chairman-elect.

The nonpartisan Congressional Budget Office estimated that the Senate's changes would result in an 8 percent increase in FHA loans

$4 billion annually in additional loan guarantees — over the next five years.

The agency, which has provided mortgage insurance since 1934, currently insures 3.7 million mortgages.

The FHA has been pushing Congress for years for the ability to guarantee more loans, saying the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas. As a result, FHA's share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

But most of the increase would not come from people in high-cost areas, the CBO said, but in the less expensive housing markets, where maximum mortgages would be going up from $200,160 to $271,050.

The Senate also passed legislation that would allow homeowners to receive mortgage forgiveness from their lender tax free. That's when a lender allows a homeowner not to pay a portion of their mortgage.

The IRS currently taxes any loan forgiveness as income. The tax forgiveness is available on mortgage indebtedness of up to $1 million.

[standlee5]

No bailout. Not now not ever. That should be our motto as a capitalist country. Buyer beware.

[mcv57]

You and I will have to pay the interest through our taxes to bail out the irresponsible lenders and home buyers.

Posted by net4unner

Aren''t you being judgmental? After all, job lose and a loser for a white house chief does not help the economy. Hey, wake up. This is the beginning of the worst economic debacle. Wait see. Don''t blame the dumbas*s to believes in the system that corporate greed has gave them. Real Estate speculation has been the scandel since the Great Depression.

[net4unner]

This is a crime against the US taxpayers who handle themselves responsibly. Guess what? You and I will have to pay the interest through our taxes to bail out the irresponsible lenders and home buyers. Meanwhile the government has already borrowed 9 TRILLION dollars in your name and my name. This is a level of debt that CANNOT be repaid. We can''t even pay just the INTEREST on the debt anymore.

[gheemaster38]

justubiteme,
be strong. I am sure as this thing unfolds yours will be the typical story and that is sad. It will not be the "rich" that suffer at all from this. They will recover quickly. It will be people like you that bought what you could afford and make a homeout of, and was told they could refi after a number of years to a fixed only to find the banks telling them "No" for whatever reason. It will be come worst if the interest rate on the dollar keeps getting slashed deflating the value of a buck. By the way, I believe most of the ones responding blaming the folks like you for a mistake probably dont own a home and would never understand how hurtful it is to be on the verge of lossing one. I almost loss one before due to a job loss so I can relate to you. Just be strong.

[gheemaster38]

Why bail them out?
They are the idiots who signed the loan docs that clearly stated the terms.

Posted by jeff92706 at 05:12 AM :

I will tell you why, because the houses they loss will probably be picked up by rental companies at cents on the dollar and they wont care who they put in them. Next thing you know your new neighbor may be the drug dealer or other undesired element.

Yes, I have seen this happen before in several foreclosure incidents.

Another reason is, we may think that our friends & relatives are doing wonderful with their new homes but it could possibly turn out they got into this home using one of these loans and are on the verge of lossing it.

[gheemaster38]

IS it possible for some of these ARM(bandit) loans to be rolled or modified into a fixed at the current interest rate? Would that not resolve the issue?

[mcv57]

Okay, more welfare for the lower and middle class.

[rowdytexan2]

lol, Bush is just shifting the burden for these loans to the taxpayer. The shifty-eyed lenders will get their money, and all the interest already paid to them by the homeowner. The lenders will walk away clean as a whistle. Which will leave the rest of us responsible when some of these folks still don''t make their payments.

I don''t mind helping people who need the help to keep their homes. It is really *** hard to get one and hold on to it.

However the hypocrisy that Bush is trying to help these homeowners is ridiculous. He''s helping the lenders who tried to scam them in the first place.

[walt1944-2009]

In an extremely rare lopsided vote in the Senate, a mortgage bailout bill has passed the Senate and now goes to the House.

However, although the Great Emperor Bush II has stated that something must be done about the mortgage crises, there is some debate that he may VETO the bill passed so lopsidedly in the Senate. Although the Emperor is expected to find something wrong with the bill which would give him a chance to veto it, it is expected that the Emperor would veto it, simply because the evil, cowardly Whimp-ocrats also support the bill. Then he could blame the Whimp-ocrats for him forcing to veto the bill!

Meantime, people will continue to lose their homes, the neocons will rejoice in the swelling in the ranks of the homeless, as the economy of the USSA goes down the toilet!

AIN''T POLITICS WONDERFUL???

SIG HEIL, BUSH!!!

[wheezel3]

This is SO sickening: Bailing out the morons who bought themselves McMansions and who refuse to pay what they owe. They HAVE the money -- they''d have to sell their Hummers, take the kids out of the private school, maybe stop using the country club for a few years, stop buying Coach handbags at $300 apiece -- but they WON''T do these things, and our LOUSY government, worse than any communist hand-out regime ever was, bails them out. In the meantime, they deny benefits to wounded veterans and health care to kids. GO TO HELL YOU BAST*ARDS!!!! Yes I''m a hater. They deserve hate.

[excoachken]

This seems to be sort of a "G.I. Bill for the stupid." Now, will our government start sticking to it''s promises to the G.I.s who have earned the "extra help?"

[barbaraf4]

Bush is bailing out the lenders. It doesn''t do his buddies any good to foreclose on thousands of homes that will sit empty and can''t be resold.

I don''t understand how it got to this point. If you are unable to financially qualify for a fixed-rate mortage, that *should* mean you can''t buy a house. Period. NOT that you can buy a house if "they" can get you in with minimum down and a variable interest rate and other hoops to jump through.

I don''t believe a young, first-time, potential homeowner family reads the fine print. I think they are so excited about getting a house that they will agree to anything and cross their fingers against future problems.

My neighbor was one of the lucky ones. He had a variable interest loan plus the builder was carrying a 10% of value note 2nd, because they could not afford the down payment. There was a balloon payment looming in the future and the interest rates were starting to climb. He had been in the house for 3 years, constantly working on his credit rating. He was able to refinance, payoff the 2nd and get a fixed rate at a reasonable percentage. He didn''t wait for the wolf to show up at the door.

[brianbwb-2009]

Pay off the loan sharks, without taking measures to see that they don''t simply rope in more victims, for the government to then pay off.

Our legislators by and large went to college, but still cannot see the idiocy of their "solution"?

How about a little "force majeure" on those loans...

[stevenga777]

Us young people want home prices to fall to normal values so we can afford them.

[fornicario]

As someone who has watched mortgages double and triple, for no reason other than a late payment, I am disgusted by people who think that this is just a bailout for the rich. What needs to be done is to clearly define who is in need of help, and forget about the rich who try to weasel their way to the head of the beggar''s line before going back to their mansions. Maybe if Congress and the other whiners were to look around and realize that people really do need help, and they have to actually keep the rich from plundering help meant for those in real need, not millionaires who suck Medicaid money meant for the poor, while collecting their Social Security checks. They should not get to have it both ways. They cut their tax bills to where they pay less than those who make minimum wage, then feed at the trough.

[gomanny1]

The S&L bail-out in the ''80s screwed the taxpayers, now we have the bail-out of the Sub prime mess by the FHA! I can smell the election BS in the air of all 93!

[drivelphobe]

Kyl is a standup guy. This bailout is a travesty and only further exemplifies our political leaders'' contempt for the will of the people and respect for our laws.

No wonder the middle-age suicide rate is at an all time high and accelerating. There is no hope for any sanity in this country. I''m fortunate to be close to the end. This trip, in the beginning, was full of promise and expectation, only to spiral downward as our country becomes a third-world nation, with personal responsibility vanishing with the support of our government. Soon, no more English, decay in the streets, and violence everywhere. How pitiful our leaders pull these shenanigans, and with such arrogance.

[feelfree1]

mcv57 at 06:47 PM,

Excellent insight and advice.

[mcv57]

justubiteme,

My advice, sell the house. Save your money. As you should know, it is not wise to purchase a home that would consume more than 28% of you and your wife''s income. You really are living on borrowed time - so use that time to sell the house. The government deal is a rip-off. You did not mention kids, even so it''s cheaper and affordable to rent a duplex or townhouse. It is not going to get better.

[justubiteme]

I really envy some of you. I am sitting on one of these loans. Must be nice to assume those of us who have these loans bought $$$ houses. Ours is a modest home. We bought 3 years ago for 212K. We are both can afford the payments, now. But in 1 month our payment for this "dream Home" will go up $400. I got laid off a year ago (job moved to India) and had to accept a job that pays way less! We have no other bills other than regular utilities and house payments. Can we make the payments, probably, but it will eat up our saving eventually. I think the same Government that makes it okay to send our jobs over seas, can now help me a little. I have never collected Unemployment or asked for any help or aid. But, a cap on our % rate for a little while would help until I can find a better job. By the way, we have never missed a payment of any kind.