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| FHA, Fannie Mae Help Minimize Subprime Fallout |
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(November 15, 2007) --
FHA and secondary mortgage market giant Fannie Mae are stepping up with significant efforts to reduce the pain from the subprime mortgage mess. But until Congress acts on long-delayed legislation backed by the NATIONAL ASSOCIATION OF REALTORS®, they're limited in how much more they can do.
In just the last 12 months FHA has doubled its loan volume and is on track to reach some 240,000 borrowers in 2007, including 80,000 refinancings by borrowers with troubled subprime loans, says Brian Montgomery, FHA commissioner and assistant secretary for housing at the U.S. Department of Housing and Urban Development. Montgomery joined Daniel Mudd, president and CEO of Fannie Mae, at a Regulatory Issues Forum at the 2007 NAR Conference & Expo.
The large number of refi borrowers stems in part from a new HUD program, backed by NAR, that allows delinquent borrowers to refinance into FHA-backed loans. Previously, borrowers had to be current on their mortgage to qualify for FHA financing. Even with the change, borrowers still must be able to show a minimum 3 percent equity in their home, a requirement that Montgomery acknowledged is a problem for home owners who've found themselves underwater as a result of declining price appreciation.
Montgomery says the number of borrowers participating in this special refi program, known as FHA Secure, will grow next year.
For its part, Fannie Mae has worked with lenders to help about 45,000 borrowers, representing some $8.6 billion in loans, refinance into safer and more affordable financing, says Mudd. The company has also been developing incentives so that loan servicers will initiate workouts with defaulting borrowers. As a result, about 750 loans a week are getting restructured, Mudd says.
Fannie Mae has also been working with three state housing finance agencies — in Ohio, Massachusetts, and New York — to provide refi loans to troubled borrowers. Almost half a billion dollars has been refinanced under that effort, which will be extended to more HFAs in the future, Mudd says.
For the two entities to grow their assistance efforts further, though, federal legislation is needed. NAR-backed FHA reform, introduced two years ago, would give a huge boost to FHA competitiveness by allowing the agency to price mortgage-insurance premiums based on risk and offer loans with low downpayments. The legislation would also raise the loan limit, which at the current $417,000 is far too low to be useful in high-cost states like California. The House passed its version of the FHA reform legislation in September. The Senate could take up its own version shortly.
“The time to have moved on this was last year,” say Montgomery, who thanked REALTORS® for their help in getting the legislation this far.
Fannie Mae is advocating legislation, also with NAR backing, that would increase the amount of loans it could invest in for its own portfolio by 10 percent. Right now its investments are capped at between $10 billion collectively between Fannie and Freddie.
Whatever happens on the legislative front, the long-term prospects for housing remain good, thanks to household growth in the U.S. “Hang in there,” Mudd says. “We'll get through this.”
— REALTOR® Magazine Online
The 2007 REALTORS® Conference & Expo is Nov. 13-16 at the Venetian Resort Hotel & Casino in Las Vegas. The meeting, with some 30,000 attendees, features more than 200 conference sessions and 744 exhibitors.
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| Reprinted from REALTOR® Magazine Online (http://www.realtor.org/realtormag), November 15, 2007 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2007. All rights reserved. |
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