As he heads to a markup Wednesday, House Financial Services Chairman Barney Frank has tweaked his proposal allowing the Federal Housing Administration to refinance up to $300 billion in new guarantees for subprime loans at risk of default.
Frank made minor changes to his bill that would help between 1 million to 2 million borrowers whose loans are scheduled to reset to a higher rate or owe much more than the house is worth.
He estimates the cost to be less than $6 billion for the proposal because FHA would recapture funds through borrower fees and home price appreciation.
Under the Frank bill, lenders would first have to write down the mortgages to make them more affordable to no more than 85 percent of the home’s value. A Senate companion bill puts the level at 87 percent.
In exchange, the lender would be paid from proceeds of the new FHA loan with no additional credit exposure to the borrower. The FHA would provide mortgage insurance on the new loan.
Borrowers would have to have a debt-to-income ratio of 35 percent as of March 1 to qualify. Previously, the level was at 40 percent. The Senate bill does not set such a standard.
The Bush administration had expressed concern with a provision that would have allowed refinancing through an auction process for bulk purchases, saying the federal government does not need a new entity to play such a role that the FHA is attempting to do administratively on a more limited basis. The Senate had similar language.
The revised Frank bill would require the Federal Reserve to conduct a study on the need for an auction mechanism and report back within 60 days.
Frank split into another measure a program that would provide $15 billion in loans and grants to cities and states to purchase and rehabilitate foreclosed homes so they could be bought or rented to needy families.
The bills are expected to be part of a housing-stimulus package the House will take up within a month. It will also include an $11 billion tax package.
House Speaker Pelosi said Thursday that a measure that would allow a bankruptcy judge to reduce the amount owed on a foreclosed house to its actual market value faces long odds because of its rejection by the Senate.
Banks have led opposition against a bill by Senate Majority Whip Durbin that would allow judges to change the terms of a mortgage in foreclosure, arguing investors would be reluctant to fund home loans if they were not guaranteed a specific rate of return. The Senate tabled the Durbin measure, 58-36, during debate this month on a housing-stimulus package.
The House Judiciary Committee approved a similar measure by Rep. Brad Miller, D-N.C., in December. It has languished without the support of the Blue Dog Coalition and Frank said he does not think the bill could clear Congress.
“It clearly does not have any good prospects in the United States Senate,” Pelosi said. “And so, whether it is on this [House] bill or not, it’s something I think we have to keep educating members about, because it’s very, very important.”
This article appears in the April 19, 2008, edition of NJ Daily.