Washington, DC - The U.S. House of Representatives today passed the most comprehensive response yet to the American mortgage crisis.  The American Housing Rescue and Foreclosure Prevention Act (H.R. 3221) responds directly to the current crisis facing middle class Americans while providing the tools to prevent a repeat of these problems.  The legislation combines a number of bipartisan bills including measures to modernize the FHA and reform the GSEs, which will provide crucial liquidity to our mortgage markets now, and also strengthen regulation and oversight for the future.  In addition, the housing package will help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.   

For more information about H.R.3221, please visit: financialservices.house.gov

Summary of H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act:

Amendment 1:FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830)

• Provides mortgage refinancing assistance to keep families from losing their homes, protect neighboring home values, and help stabilize the housing market.

• Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government -insured mortgages they can afford to repay.  This legislation will help troubled borrowers avoid foreclosure while minimizing taxpayer exposure.

• Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.

• Protects taxpayers by requiring lenders and homeowners to take responsibility.  This is not a bailout; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal.  In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.

• Contains important protections for taxpayers’ dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.

• Provides $230 million for financial counseling to help families stay in their homes.

FHA Modernization (H.R. 1852)

• Expands affordable mortgage loan opportunities for families (many of whom would otherwise turn to subprime lenders) and for seniors through expanded access to reverse mortgages through Federal Housing Administration reform

• This measure passed the House in September.  (Expanding American Homeownership Act of 2007, H.R.1852)

GSE Reform (H.R. 1427)

• Strengthens regulation of Fannie Mae and Freddie Mac, and the Federal Home Loan Bank system.

• Raises the GSE loan limits for single family homes in high cost areas, so that these entities can purchase more loans in higher cost areas (thereby lowering interest rates for new homes and refinancings in those areas).

• Expands liquidity in the mortgage markets by buying loans already made, freeing up money for new mortgages and refinances.

• Creates a new Fund to boost the nation’s stock of affordable rental housing. 

Encouraging Mortgage Modifications/Castle Bill (H.R. 5579)

• Mortgage servicers are concerned about the threat of investor lawsuits if they help families in danger of losing their homes with loan modifications that reduce monthly mortgage payments through lower interest rates, reduced principal amounts or other changes in loan terms.

• To speed loan modifications and keep more families in their homes, this package includes HR 5579 to provide mortgage servicers with clarity and certainty for their actions, and protection from such lawsuits for specified loan modifications.

Preserving the American Dream for Our Nation’s Veterans 

• Increases VA Home Loan limit, as was done in the stimulus package, for high-cost housing areas so that veterans have more homeownership opportunities.

Amendment 2– Tax Provisions to Expand Refinancing Opportunities and Spur Home Buying (H.R. 5720): This amendment provides $11 billion in tax benefits, including tax credits to first-time homebuyers, a real property tax deduction for non-itemizers, an additional $10 billion in mortgage revenue bonds for states, and improves access to low-income housing.

• Gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market.  The credit will begin to phase out for taxpayers with adjusted gross income in excess of $70,000 ($140,000 in the case of a joint return).

• Provides taxpayers that claim the standard deduction with up to an additional $350 ($700for a joint return) standard deduction for property taxes in 2008.

• Temporary increase in mortgage revenue bond authority to allow for the issuance of an additional $10 billion of tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing.

• Temporary increase in low-income housing tax credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.

• Helps returning soldiers avoid foreclosure by lengthening the time a lender must wait before starting foreclosure, from three months to one year after a soldier returns from service. 

• Would not add to the national debt.  The cost of this bill is offset with a tax compliance provision included in the President’s Budget and by delaying the effective date of a tax benefit for multinational companies that has not yet taken effect.

Amendment 3– Miller/LaTourette

• This amendment protects the right of states and cities to regulate the foreclosure process and the treatment of foreclosed property — by clarifying that this act, the National Bank Act, and the Home Owner’s Loan Act do not preempt State foreclosure laws for national banks or federally chartered thrifts. 

• Exempting national banks and thrifts from foreclosure law would deprive the states and cities of the right to require that foreclosures must follow certain procedures, including notice to the people foreclosed, and that foreclosed property be safely maintained.

• Many in the industry and in the Bush administration argue that national banks should be exempted from these rules. There is no reason that national banks and federal thrifts should be treated differently from all other mortgage holders when it comes to how to foreclose and how to maintain foreclosed property.

From the House

Forbes:

Committee Chairman Barney Frank of Massachusetts has said the bill, the Housing Stabilization and Homeownership Retention Act, could be up for a vote by the House as early as next week.

Under the bill approved today, a voluntary program would be created that would allow the Federal Housing Administration (FHA) to insure up to 300 bln usd worth of refinanced mortgages. Mortgages eligible under the program would be those that mortgage holders are willing to write down so struggling borrowers can avoid foreclosure and instead make smaller mortgage payments.

Wall Street Journal Blog:

The program would hinge on the willingness of mortgage servicers and investors to agree to restructure troubled loans, as well as to pay the financing cost of making the federal loans.

“Only the federal government is in a position to help arrest the downward cycle in housing markets by facilitating temporary aid to borrowers facing financial difficulty and encouraging widespread restructuring of unaffordable mortgages,” the FDIC said in a document outlining the plan.

FDIC Chairman Sheila Bair, in a conference call with reporters, acknowledged that servicing firms would receive some benefit through the program. She noted, however, that those firms would be required to cover the financing costs and would have to subordinate their claims to the federal government if they choose to take part in the program.

More from Forbes:

Democratic senators have said they support this type of legislation, and Senate Banking Committee Chairman Christopher Dodd of Connecticut has said he would like to see a 400 bln usd program.

Treasury Spokeswoman Brookly McLaughlin this week declined to say if Treasury supports or opposes Bair’s suggestion, but did say there are other housing priorities right now.

‘We’ll take a look at any proposals, but we think the focus right now should be on getting FHA modernization and GSE reform legislation across the finish line,’ McLaughlin said.

 

 

 

Washington, DC - {The House Financial Services Committee today approved H.R. 5830, the FHA Housing and Homeowner Retention Act, by a bipartisan vote of 46 to 21.  The legislation, authored by Committee Chairman Barney Frank, will expand the FHA program to help refinance at-risk borrowers into viable mortgages.  The bill also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism.  The legislation now moves to the full House for consideration.

“It is important that we reduce the number of foreclosures both as a matter of alleviating the pain for some individuals and stabilizing some neighborhoods. It is my hope that this legislation will restore some stability to the housing market, put liquidity back in the market, and not interfere with the market, but help restore it,” said Chairman Frank.

“Servicers should put a pause in some foreclosures until they can wait to see exact details of this as it moves forward.  If after this we continue to get very little participation by servicers, I can guarantee you that the servicer industry will look very different a year from now than they do today.  If after everything we do in this cooperative way falls short, then you are going to see legislation that puts some very real restrictions on the role of servicers and give many more rights to the borrowers,” Frank continued.

The following is a revised summary of H.R. 5830, as amended:

FHA Housing Stabilization and Homeownership Retention Act

Summary of H.R. 5830 (May 1, 2008)

Summary of the Expanded FHA Refinance Program.  This voluntary program would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages.  This $300 billion is the total amount of outstanding loans that may be insured under the program.  The government would only have liability if a borrower defaults and the amount recovered in foreclosure is below the outstanding principal. 

In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder who chooses to participate would receive a “short payment” (i.e. a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government.  In short, the program would provide refinancing assistance to allow families to stay in their homes, protect neighborhoods and help stabilize the housing market.

Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay.  If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.

In addition to a first lien, the government will retain a share of future home-price appreciation to help defray the government’s costs and prevent unjust enrichment (e.g., borrower flipping).  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any net proceeds attributable to home appreciation (i.e., from 100 percent in year one to 50 percent in year four and thereafter minus the fees the borrower has paid into FHA).
Eligibility Requirements for Existing Loans (Requires All of the Following):

• Owner-occupied principal residences only (no investors, speculators or second homes), and borrowers must certify that they do not own any other homes;
   
• Existing senior loan being refinanced must have been originated on or before December 31, 2007; 
   
• To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less than 35 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s) and did not obtain the existing loan fraudulently;
   
• Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full; and
   
• Existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower.  Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

Requirements for New FHA-Insured Loans:
 

• New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee);
   
• New FHA loan must extinguish all existing liens and substantially reduce the borrower’s mortgage debt service;
   
• New FHA loans under this program must be within the FHA loan limits now in effect under the stimulus for the duration of this program;
   
• Oversight Board will set reasonable limits on loan fees and interest rates; and
   
• To reduce costs to the government – and avoid inappropriate enrichment to the borrower – the government will retain a share of the borrower’s future profits.  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any net proceeds attributable to home appreciation (i.e., from 100 percent in year one to 50 percent in year four and thereafter minus the fees the borrower has paid into FHA). 

Oversight Board.  The program will be overseen by a “Refinance Program Oversight Board” consisting of the Secretary of Treasury, the Secretary of HUD, and Chairman of the Federal Reserve.  

Coordination of Existing Lien-Holders.  The Oversight Board will be authorized to take action to facilitate coordination among different existing lien-holders; and shall be empowered to establish a formula for compensating and a mechanism for obtaining the voluntary waiver of all lien holders.

Separate FHA Fund.  To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in a separate fund in FHA – and will be permitted to be resold through GNMA.

Improving FHA Capacity.  The Oversight Board will take actions as necessary to increase FHA’s capacity, including:

• Treasury, Federal Reserve and HUD may sharing employees to improve FHA capacity;
   
• Contracting for the establishment of underwriting criteria, pricing standards, and other factors relating to eligibility;
   
• Contracting for independent quality reviews of the underwriting of these mortgages; and
   
• Increasing HUD personnel.

Auction or Bulk Refinance Study.  The Federal Reserve Board will be required to conduct a study of the need for, and efficacy of, an auction or bulk refinancing mechanism and submit a report to Congress within 60 days of enactment.

• Increased Fraud Prevention/Oversight.
   
• Independent quality reviews will be established to determine underwriter compliance, and rates of delinquency, claims and losses;
   
• Monthly reports will be submitted to Congress; and
   
• Annual audit of the program will be conducted.

Sunset.  The program will run for 2 years (with flexibility for additional 6 month extensions not to exceed 2 more years). 

Authorization for Foreclosure Counseling & Legal Aid.  The bill would authorize $210 million dollars for foreclosure counseling, including to veterans recently returning from active duty in the armed forces, with at least $30 million targeted to low-income and minority homeowners and $35 million to assist with legal aid.

Office of Housing Counseling.  Establishes within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling.
 

• Requires HUD to provide for the certification of various computer software programs for consumers to use in evaluating different residential mortgage loan proposals.
   
• Authorizes appropriation not to exceed $3 million for national public service multimedia campaigns for homeownership counseling services for fiscal years 2008, 2009, and 2010.
   
• Requires HUD to provide financial and technical assistance to States, local governments, and nonprofit organization regarding the establishment and operation of related educational programs, and authorizes appropriation of $45 million for each of fiscal years 2008 through 2011.
   
• Directs HUD to study and report to Congress on the root causes of the default and foreclosure of home loans.

Mortgage Fraud.  Authorizes appropriations of $31,250,000 to hire additional FBI agents and Department of Justice prosecutors to combat mortgage fraud, and $750,000 to support FBI interagency task forces in the areas with the 15 highest concentrations of mortgage fraud. 

VA Loans.  Increases conforming loan limits for VA loans.

House Press Release

Appraisals.  Requires enhanced appraisal standards and appraiser independence

 Mark up of both measures set for April 23rd and 24th

Washington, DC - In response to the nationwide economic downturn caused by the housing and credit crisis, members of the House Financial Services Committee today introduced legislation to combat the unprecedented rise in foreclosures, and the associated impact on cities and states.  The legislation first announced by Chairman Barney Frank in March, will be divided into two measures: H.R. 5830, the FHA Housing and Homeowner Retention Act, to expand the FHA program to help refinance at-risk borrowers into viable mortgages and also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. 

The second measure, H.R. 5818, the Neighborhood Stabilization Act of 2008, introduced by Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters, will provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country. 

A committee mark up session and vote on the two measures are scheduled for 10:00 a.m. on Wednesday, April 23rd and Thursday, April 24th.

A summary of H.R. 5818, the Neighborhood Stabilization Act of 2008 can be found at: http://www.house.gov/apps/list/press/financialsvcs_dem/press0417083.shtml

A summary of the H.R. 5830, the FHA Housing and Homeowner Retention Act as follows:

FHA Housing Stabilization and Homeownership Retention Act

Summary of H.R. 5830

Summary of the Expanded FHA Refinance Program.  This voluntary program would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages.  This $300 billion is the total amount of outstanding loans that may be insured under the program.  The government would only have liability if a borrower defaults and the amount recovered in foreclosure is below the outstanding principal.  While CBO is still reviewing the proposal and has not released their report, we believe that the program will have an ultimate cost between 1 and 2 percent of this $300 billion authorization.

In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder who chooses to participate would receive a “short payment” (i.e. a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government.  In short, the program would provide refinancing assistance to allow families to stay in their homes, protect neighborhoods and help stabilize the housing market.

Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay.  If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.

In addition to a first lien, the government will retain a share of future home-price appreciation to help defray the government’s costs and prevent unjust enrichment (e.g., borrower flipping).  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter).  After year five only the 3 percent exit fee will apply from borrower profits.

Eligibility Requirements for Existing Loans (Requires All of the Following):

        Owner-occupied principal residences only (no investors, speculators or second homes);

·        Existing senior loan being refinanced must have been originated on or before December 31, 2007; 

·        To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less that 35 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s);

·        Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full; and

·        Existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower.  Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

Requirements for New FHA-Insured Loans:

·        New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee);

·        New FHA loan must extinguish all existing liens and substantially reduce the borrower’s mortgage debt service;

·        New FHA loans under this program must be within the FHA loan limits now in effect under the stimulus for the duration of this program;

·        Oversight Board will set reasonable limits on loan fees and interest rates; and

·        To reduce costs to the government – and avoid inappropriate enrichment to the borrower – the government will retain a share of the borrower’s future profits.  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter).  After year five only the 3 percent exit fee will apply.

Oversight Board.  The program will be overseen by a “Refinance Program Oversight Board” consisting of the Secretary of Treasury, the Secretary of HUD, and Chairman of the Federal Reserve.  

Coordination of Existing Lien-Holders.  The Oversight Board will be authorized to take action to facilitate coordination among different existing lien-holders; and shall be empowered to establish a formula for compensating and a mechanism for obtaining the voluntary waiver of all lien holders.

Separate FHA Fund.  To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in a separate fund in FHA – and will be permitted to be resold through GNMA.

Improving FHA Capacity.  The Oversight Board will take actions as necessary to increase FHA’s capacity, including:

·        Treasury, Federal Reserve and HUD may sharing employees to improve FHA capacity;

·        Contracting for the establishment of underwriting criteria, pricing standards, and other factors relating to eligibility;

·        Contracting for independent quality reviews of the underwriting of these mortgages; and

·        Increasing HUD personnel.

Auction or Bulk Refinance Study.  The Federal Reserve Board will be required to conduct a study of the need for, and efficacy of, an auction or bulk refinancing mechanism and submit a report to Congress within 60 days of enactment.

Increased Fraud Prevention/Oversight.

·        Independent quality reviews will be established to determine underwriter compliance, and rates of delinquency, claims and losses;

·        Monthly reports will be submitted to Congress; and

·        Annual audit of the program will be conducted.

Sunset.  The program will run for 2 years (with flexibility for additional 6 month extensions not to exceed 2 more years). 

Authorization for Foreclosure Counseling & Legal Aid.  The bill would authorize $200 million dollars for foreclosure counseling, with at least $30 million targeted to low-income and minority homeowners and $30 million to assist with legal aid.

Source  http://www.house.gov/apps/list/press/financialsvcs_dem/press0417082.shtml