CNN article about Senate Banking Committee vote

[JENIFFERW]

I haven't had time to read this yet, but it sounds like big news. There is also a story on Appraisal Scoop with some links.

http://money.cnn.com/2008/05/20/news/economy/dodd_shelby_deal/index.htm?postversion=2008052012

 

[Elliott]

I wonder how much the FHA Insurance will be....I'd think it would be hefty.

"$300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers' homes.

"Borrowers, for their part, must pay an annual premium to the FHA for the insurance backing their new loans. And they must share their equity with the government when they sell or refinance their homes.

"So, in cases where borrowers owe more on their homes than they're worth, lenders would forfeit any amount owed above appraised value plus 10% equity. They also would have to pay upfront costs to the government to participate.

"To qualify for an FHA-backed loan in either proposed program, lenders would have to be willing to write a new, 30-year fixed rate loan for borrowers for an amount no greater than 90% of the appraised value of the home. The other 10% would be equity for the borrower.

 

[Karl]

Bush (one of those that everyone says is for big business) Plans on NOT signing these bills

 

[Bama Bayou]

The fraud appraisers who have been pumping numbers will now deflate values for this program. FHA will go under because they will let anyone with a pulse be on their approved list.

Bush will sign this bill, it's an election year. He has to "do something". I find it interesting that Dodd engineered this since he is all for affordable housing. Looks like the market has been creating more affordable housing for the last two years.

 

[ghrousseau]

I wonder how much the FHA Insurance will be....I'd think it would be hefty.

"$300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers' homes.

"Borrowers, for their part, must pay an annual premium to the FHA for the insurance backing their new loans. And they must share their equity with the government when they sell or refinance their homes.

"So, in cases where borrowers owe more on their homes than they're worth, lenders would forfeit any amount owed above appraised value plus 10% equity. They also would have to pay upfront costs to the government to participate.

"To qualify for an FHA-backed loan in either proposed program, lenders would have to be willing to write a new, 30-year fixed rate loan for borrowers for an amount no greater than 90% of the appraised value of the home. The other 10% would be equity for the borrower.

FHA is usually 1.5% on a refi. The borrower pays it upfront in a lump sum and it is usually financed in the loan amount. The borrower then pays a monthly amount as well so it is a double whammy. The main downside I see in this is that 30 and 15 year rates will likely go up as a result of the associated costs to Fannie and Freddie. Also, this is only going to help people who can qualify under FHA guidelines with real income and real assets and real citizenship. This will be good for some borrowers who got steered into bad products when they could have originally been approved for FHA. For others there will not be much benefit.

 

[Lloyd Bonafide]

On the last house we bought a few years ago, I wish we hadn't put much money down, because then we would be seriously upside down, and we could maybe get some free equity in the form of a loan writedown. m2:

 

[Alison Swain]

Any news yet on Elizabeth Dole's bill that was supposed to be up for a vote on Monday?

 

[hovious]

Any news yet on Elizabeth Dole's bill that was supposed to be up for a vote on Monday?

Dole's Bill was NOT included as part of this legislation.....

 

[Mike Boyd]

I wonder how much the FHA Insurance will be....I'd think it would be hefty.

FHA insurance....called Mutual Mortgage Insurance, is 1/4 of 1% of the loan amount. It is paid by the borrower one year in advance with an escrow account to collect monthly fees for the next year's installment. Currently, there is no way to end that insurance premium except to pay off the loan. The escrow account is administered by the new lender.

It is my understanding that the profit to be shared is to benefit the old LENDER, not the government and only in an amount that would reimburse that lender for the amount of the write down of the original loan.

If my understanding is correct, I think this is a good program with the least potential cost to the taxpayer and all parties involved. The FHA infrastructure is already in place and has been for at least 50 years. The lenders responsible for making all the garbage loans will suffer an initial loss but will have a way of recouping it sometime in the future. The borrower does not get away scott free as he has to share his future profit in paying back the lender for the amount of the write down. This gives the borrower a chance to start over in their same home. It will not be available for investors or speculators and the house must be owner occupied.