BREAKING NEWS: Expanded Homeowners Program Approved by Bush
The White House announced early today that President Bush has approved a plan to expand a housing program to insure loans for credit-worthy homeowners unable to meet mortgage payments and which is expected to help about 500,000 borrowers by the end of this year.
The expansion is designed to help about 100,000 homeowners, including many who owe more than their houses are worth, reduce their monthly payments, administration officials said. The expansion involves encouraging lenders to write down the value of the loans, they said. In return, the risk of default would be shifted to the government.
The effort likely will face opposition from Democratic lawmakers, who contend the administration's efforts up to now have been insufficient. And it likely won't be able to tackle all the homeowners hit by the housing slump. According to the Mortgage Bankers Association, more than 2% of the nation's about 46 million mortgage loans were in the foreclosure process in the fourth quarter, while the delinquency rate for home loans hit 5.82%.
"We've always been looking to help as many people as possible without putting taxpayer dollars at risk," said an administration official, who left the door open for further action.
The expansion would be funded by premiums paid by borrowers whose loans are backed by the Federal Housing Administration, the government's mortgage insurer, instead of by taxpayer funds, officials said. It would allow the FHA to insure a new mortgage if a lender voluntarily writes down the mortgage principal to a maximum of either 90% or 97% of the new value, depending on the borrower's risk profile. If a loan and home was originally valued at $110,000, for example, and fell to $100,000, lenders could reduce the principal to either $97,000 or $90,000 to qualify for FHA insurance.
Borrowers can qualify if they had some late payments over the previous year, but are otherwise reliably credit-worthy and want to remain in their homes. Existing FHA underwriting standards still apply, and the home must be owner-occupied, so speculators, high-risk borrowers and owners of vacation homes wouldn't be allowed.
The expansion could depend on the willingness of banks and lenders to take a haircut on their loans. Some banks had floated similar proposals in recent weeks, but it's unclear how they would react to this expansion.
Source: Source: CNBC, Wall Street Journal | Published on April 9, 2008
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