Housing Foreclosure Prevention Act of 2008 (HR 3221)
The 600+ bill is aimed at helping distressed homeowners. I am sure we all don’t have time to read the full document (housing act), so here is a great summary of what the bill is going to do provided by Votesmart.Org:
-Establishes the Refinance Program Oversight Board, which is responsible for coordinating a program that insures “homeownership retention mortgages,” which are refinance loans designed for borrowers who are at risk of foreclosure (Sec. 112).
-Specifies that the aggregate original principal mortgages insured under the “homeownership retention mortgage” program may not exceed $300 billion (Sec. 112).
-Expands eligibility for FHA mortgage insurance to include borrowers who have been deemed “high risk” due to having a credit score equivalent to a Fair Isaac Corporation (FICO) score of less than 560 (Sec. 206).
-Provides incentives for “high risk” borrowers who have consistently paid their premiums on time that would reduce the amount of annual premium payments to payment levels equal to that of individuals who are not deemed “high risk” borrowers (Sec. 208).
-Mandates the establishment of underwriting standards which allow the FHA to insure mortgage loans for qualified borrowers who have existing mortgages with adverse terms or rates, qualified borrowers who do not have access to mortgages “at reasonable rates and terms for such refinancings due to adverse market conditions”, and qualified borrowers who are in default or at imminent risk of being in default (Sec. 210).
-Outlines the following eligibility requirements for receiving insurance for a “homeownership retention mortgage”:
-The insured residence shall be the sole residence in which the mortgagor has a full ownership interest,
-The mortgagor shall be verifiably unable to pay the existing mortgage(s) and, as of March 1, 2008, the mortgagor shall have had a mortgage debt-to-income ratio of greater than 35 percent,
-The new loans shall not exceed 90 percent of the property’s value,
-Prepayment, default, and delinquency penalties on existing mortgages shall be waived,
-Indebtedness under the existing senior mortgage shall have been reduced by such percentage as the Refinance Program Oversight Board may require, and holders of liens on property securing a mortgage to be insured under the program shall agree to accept the proceeds of the insured loan as payment in full for all indebtedness under all existing mortgages,
-The Secretary of Housing and Urban Development shall hold and retain a lien on the residence which will be subordinate to the mortgage insured under the program but will be senior to all other mortgages,
-The mortgage insured under the program shall bear a single rate which will be fixed for the entire mortgage term,
-The mortgagor shall undergo a criminal history check to ensure that he or she has not been convicted of mortgage fraud in the past seven years (Sec. 112).
-Requires the implementation of the following underwriting standards for the “homeownership retention mortgage” program: the mortgagor insured under the program shall have “a reasonable expectation” of repaying the mortgage, there shall be no denial of insurance based on credit scores, based on previous delinquency or default, or based on bankruptcy, and a total debt-to-income ratio of up to 50 percent shall be allowed (Sec. 112).
-Terminates “homeownership retention mortgages” two years after the enactment of this amendment, in the absence of any approved extensions (Sec. 112).
-Increases the allowed levels of principal obligations for mortgages insured by the FHA (Sec. 203).
-Extends the term of mortgages insured by the FHA from thirty-five to forty years (Sec. 204).
-Establishes the Federal Housing Finance Agency, which shall supervise and regulate Fannie Mae, Freddie Mac, and Federal Home Loan Banks (Sec. 311).
-Raises limits on loans that Fannie Mae and Freddie Mac can purchase from $93,750 to $417,000 for a single-family residence, from $120,000 to $533,850 for a two-family residence, from $145,000 to $645,300 for a three-family residence, and from $180,000 to $801,950 for a four-family residence (Sec. 333).
Key attention should be noted that this bill will reduce loan balances for troubled homeowners and transition the debt carried by the banks to the Federal Government (taxpayers).
One should also pay attention that this bill has roots to the banking industry. While the stated goal is to help troubled homeowners, it is a bank bailout. You can read an internal document from Bank of America posted by the bigpicture and help but not see how similar the bill is to the ideal plan outlined by BofA.
My favorite quote in the document “we believe that any intervention by the federal government will be acceptable only if it is not perceived as a bail-out of the bond market”