UPDATE: FHA Eyes Regulatory Changes To Better Aid Homeowners
February 24 2009 - 4:42PM
Dow Jones News
The Obama administration is working on regulatory changes to
allow the Federal Housing Administration to assist homeowners faced
with "more than just temporary" losses in income, a senior U.S.
housing official testified Tuesday to a U.S. House panel.
The Department of Housing and Urban Development is also
requesting authority to allow the FHA to buy down balances of
troubled mortgage loans, according to written testimony by HUD
Director for Single Family Asset Management Vance T. Morris.
The remarks reveal fresh details of the administration's
strategy to assist homeowners at risk of foreclosure. President
Barack Obama last week unveiled a sweeping plan to spur loan
modifications for certain borrowers and make it easier for
borrowers who have seen their home values plummet take advantage of
current low mortgage rates.
But so far, officials have indicated the modification program
would help borrowers who have seen their mortgage payments balloon
due to adjustable-rate mortgages. They have not announced steps to
help borrowers who cannot afford their payments because they may
have lost their jobs, a growing problem due to the economic
downturn.
The housing plan targets "working homeowners making a good-faith
effort to stay current on their mortgage payments," according to a
fact sheet released by the administration. More plan details are
scheduled for release on March 4.
Morris testified Tuesday before the Financial Services
Committee's housing subcommittee - the latest in a string of
hearings in recent months on mortgage servicers' efforts to help
troubled borrowers.
In addition to Morris, officials from the Office of the
Comptroller of the Currency, the Office of Thrift Supervision and
the Federal Housing Finance Agency testified. Industry officials
representing Citigroup (C), Bank of America (BAC), Ocwen Financial
Corp., Wells Fargo (WFC) and JP Morgan Chase (JPM) comprised a
second slate of witnesses.
The government officials offered support for the Obama housing
plan.
FHFA chief economist Patrick J. Lawler said the administration
plan to allow homeowners who owe more than 80% of the value of
their home to refinance more easily would not increase the risk to
Fannie Mae (FNM) and Freddie Mac (FRE).
The program, open only to borrowers with mortgages backed by the
mortgage giants, would allow people with high loan-to-value
mortgages to refinance without purchasing additional mortgage
insurance. The firms' government charters prevent them from buying
mortgages with loan-to-value ratios above 80% unless the borrower
obtains credit enhancement.
In his testimony, Lawler said re-default rates of individually
modified loans have historically ranged around 25%-30%, far lower
than the more than 50% rate cited by the OCC. However, he noted
that that a lack of common definitions makes it difficult to
compare re-default rates.
Lawler also noted that the foreclosure problem is concentrated
in loans that aren't owned or guaranteed by Fannie Mae and Freddie
Mac. The two own or back just 19% of seriously delinquent
mortgages, he said, while so-called private-label mortgage-backed
securities represent more than 62% of serious delinquencies.
"If we are going to stabilize the housing market, we must
address that 62%," he said.
As part of its housing plan, the Obama administration has
proposed changes to FHA and Veterans Administration authority to
ensure that partial claims are paid to investors in mortgages
backed by the agencies in the event of a cramdown by a bankruptcy
judge or a voluntary modification by the servicer. The changes are
intended to prevent investors from shunning mortgages insured by
the agencies and to spur more loan modifications.
Legislation pending before the House would make the statutory
changes. The bill, which is set for a vote as soon as Thursday,
would also make it easier for mortgage servicers to assign
government-insured loans back to the government for
modification.
The change would allow them to avoid the costs of buying back
loans packaged into Ginnie Mae securities and sold to
investors.
Lawler said that programs by the Federal Reserve to buy
mortgage-backed securities and debt issued by Fannie and Freddie
have reduced mortgage rates. "If confidence is restored and the
present large spread to Treasury rates is reduced, mortgage rates
could move lower," he said.
Lawler repeated that the government's agreement to pump $200
billion into Fannie and Freddie to keep them solvent amounted to an
"effective guarantee" of the firms' debt and mortgage-backed
securities.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com