Foreclosure Bill Moves One Step Closer

After the housing market rescue plan won House of Representatives approval in May by a bipartisan vote of 46 to 21, the Senate moved a step closer on Thursday by a vote of 84-12, to finally pass a comprehensive housing and foreclosure prevention bill.

The bill’s centerpiece which is directed at refinancing distressed mortgages, consists of a two-year program for the Federal Housing Administration (FHA) to offer $300 billion in new loan guarantees. The program would provide refinancing assistance to allow families to stay in their homes, and in the process help stabilize the housing market. The $300 billion is the total amount of outstanding loans that may be insured under the program.

As a pre-condition for participating in the program, lenders would have to agree to forgive portions of troubled loans, while borrowers would have to meet certain standards, starting with indebtedness and non-intentional default as a main criteria.

The cost of the new FHA program – which will only be in place for a few years – would be funded by fees from Fannie Mae (FNM) and Freddie Mac (FRE).

“We know they play a central role in our housing – said Thursday Sen. Richard Shelby, R-Ala., referring to Fannie and Freddie. We also know that together they owe over $5 trillion in debt, and they’re thinly capitalized. The way to keep them (from getting into worse shape) is to create a strong regulator to make sure they’re adequately capitalized.”

The Senate bill calls for the appointment of a new regulator to be made immediately.

The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to $625,000 from $417,000. The FHA maximum loan limits for high-cost areas would also increase to $625,000. The House bill raises the limit at all three agencies to nearly $730,000. [Via CNNMoney]

“Higher loan limits will make it easier for borrowers to get mortgages, because they’re more likely to be traded if they are considered conforming”.

According to a Congressional Budget Office study, FHA would insure about 500,000 loans over the 2008-2013 period with an estimated average subsidy cost of about 2% of the loan principal.

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About Ron Haruni 1068 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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