White House Details Housing Plans

Saying that the housing crisis struck right at thernheart of what it means to be middle class, President Barack Obama has begun tornflesh out the housing-related proposals he made in his State of the Unionrnspeech last Tuesday.  He spoke thisrnmorning at Falls Church, Virginia about his housing plans, some pieces of whichrnhave already been put into effect by the Departments of Justice (DOJ),rnTreasury, and Housing and Urban Development (HUD) in the eight days since theyrnwere first announced. The President spoke only briefly and most of therninformation about his proposals comes from a Fact Sheet released by the WhiternHouse just before his speech.</p

The most ambitious part of the Administration’srnhousing plan is the expansion of several existing programs to streamlinernrefinancing for homeowners with existing high interest rate government orrnFannie Mae/Freddie Mac mortgages. The President wants to extend thesernopportunities to homeowners with standard conforming non-FHA, VA, or GSErnmortgages through a new program run through FHA.  To be eligible the homeowner would have meetrna few simple criteria:</p<ul class="unIndentedList"<liBorrowers will need to have beenrncurrent on their loan for the past 6 months and have missed no more than onernpayment in the 6 months prior. </li<liBorrowers must have a current FICOrnscore of 580 to be eligible, a requirement met by approximately 9 in 10 borrowers.rn </li<liThe loanrnthey are refinancing is for a single family, owner-occupied principal residence. </li</ul

Arnstreamlined application process will make it simpler and less expensive forrnboth borrowers and lenders.  Borrowersrnwill not be required to submit a new appraisal or tax return, merely verifyrncurrent employment.  Those who are notrnemployed may still be eligible if they meet the other requirements and presentrnlimited credit risk, however, a lender will need to perform a full underwritingrnof those borrowers. </p

The President’s plan includesrnadditional steps to reduce program costs, including working with Congress to establishrnrisk-mitigation measures including requiring lenders interested in refinancingrndeeply underwater loans to write down the balance of these loans before theyrnqualify.   There would be a separate fund created for the program to helprnthe FHA track and manage the risk involved and ensure that it has no effect onrnthe operation of the existing Mutual Mortgage Insurance (MMI) fund.  The estimated $5 to $10 billion cost of the program would be paid by a fee on thernlargest financial institutions based on their size and the riskiness of theirrnactivities</p

There werernalso some changes suggested for GSE refinancing programs.  President Obama said he believed the steps hernproposes are within the existing authority of the FHFA but the GSEs have notrnacted so he is calling on Congress to:</p<ul class="unIndentedList"<liEliminate appraisal costs for all borrowers by using mark-to-marketrnaccounting or other alternatives to manual appraisals where Automated ValuationrnModels cannot be used to determine loan-to-value ratios.</li<liDirect the GSEs to require the samernstreamlined underwriting for new servicers as they do for current servicers tornunlock competition and lower borrowing costs. </li<liExtend streamlined refinancing tornall GSE borrowers including those with significant equity in their home. </li</ul

There are also proposals to streamline refinancing forrnborrowers in the USDA and FHA housing programs but the White House noted thatrnthe current FHA-to-FHA streamlined refinancing program has met with somernresistance from lenders who are afraid to make loans that might compromise theirrnFHA approved lender status.  FHA isrnremoving these loans from their “Compare Ratio” process which should open the programrnup to more borrowers.</p

Borrowers utilizing either the HomernAffordable Refinancing Program (HARP) or the new FHA-based program would berngiven an alternative to allow them to rebuild the equity in their home.  This option would require refinancing into arn20 year mortgage and the homeowner would continue to make the old mortgagernpayment.  The excess money would bernapplied directly to principal that, along with the shorter term would allow thernhomeowner to quickly rebuild equity.  Tornencourage borrowers to make this choice (which also reduces lender risk) thernadministration is proposing legislation to provide for the GSEs and FHA torncover the loans’ closing costs.</p

ArnHomeowner Bill of Rights proposed by the Administration would apply to the mortgagernservicing system which the White House said “is badly broken and would benefitrnfrom a single set of strong federal standards.” rnAmong the items proposed for this Bill of Rights are:</p<ul class="unIndentedList"<liSimple,rnEasy to Understand Mortgage Formsrn</li<liDisclosure of all known fees andrnpenalties</li<liNo conflicts of interest betweenrnservicers and investors or servicers and junior lien holders.</li<liAssistancernfor at-risk homeowners to include early intervention, continuity of contact,rnand time and options to avoid foreclosure.</li<liSafeguardsrnagainst inappropriate foreclosure including the right of appeal, certificationrnof proper process.</li</ul

The President plans to include $15 billion in his Budget forrna national effort to hire construction workers to rehabilitate hundreds ofrnthousands of vacant and foreclosed homes and businesses.  Similar to the Neighborhood StabilizationrnProgram, Project Rebuild will enlist expertise and capital from the privaternsector, focus on property improvements, and expand property solutions like landrnbanks.  The Budget will also provide $1rnbillion in funding for the Housing Trust Fund to finance the development ofrnaffordable housing for extremely low income families while providing jobs inrnthe construction industry.  </p

Other initiatives which thernPresident talked about this morning or which were covered in the White HousernFact Sheet have already been launched in the last few days including a jointrninvestigation with the states into mortgage origination and servicing abuses, expansionrnof eligibility criteria for HAMP and increased incentives for lenders in thernprogram to reduce principal balances, and a pilot sale announced to transitionrnforeclosed properties into rental housing in certain highly distressedrncommunities which was announced by HUD this morning </p

The WhiternHouse said that, while the government cannot fix thernhousing market on its own, the President believes that responsible homeownersrnshould not have to sit and wait for the market to hit bottom to get relief whenrnthere are measures at hand that can make a meaningful difference, includingrnallowing these homeowners to save thousands of dollars by refinancing atrntoday’s low interest rates. </p

Conventional wisdom holds that thernPresident’s proposals will be “dead on arrival” when they reach Congress and,rnin fact the reaction of Speakerrnof the House John Boehner to the speech was, “How many times are we going to dornthis?  How many times are we going tornsuggest programs to help people who can’t make payments on theirrnmortgages?  The programs don’t work.”</p

Arnkinder assessment was released in a statement from David H. Stevens, Presidentrnand CEO of the Mortgage Bankers Association. rnStevens commented specifically on the Homeowner Bill of Rights sayingrnthe Association agrees that a single national set of standards “can helprnprovide confidence and certainty in the real estate market for borrowers,rnlenders, and servicers alike.”</p

Hernalso commended the administration for “recognizing that more can be done to getrnour housing market on track.  The programs announced today will give lenders and otherrnstakeholders additional tools to help borrowers and foster a renewed confidencernin our real estate finance system.” rn </p<prnrnrnrnrnrnrnrn

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