As pols continue to fight over housing assistance packages on Capitol Hill, the Bush Administration on Wednesday unveiled
an expansion of the FHASecure program targeted to troubled subprime borrowers.
Under the new plan, HUD's Federal Housing Administration will begin insuring refinanced mortgages for borrowers who were late on a few payments or those who receive a voluntary mortgage principal write-down from their lender. Administration officials said in a press statement that they expect the expansion of the lending program to lead FHASecure to reach an additional 500,000 troubled borrowers.
"Our plan will help hundreds of thousands of desperate families who have no place else to turn for safer, lower cost ways to keep their homes," said assistant secretary for housing Brian D. Montgomery at a hearing of the House Financial Services Committee yesterday. "We want to be able to help families who are in the right house, but the wrong mortgage."
Montgomery said that HUD will encourage lenders, servicers and investors to write principal amounts on delinquent loans down to 90 or 97 percent of LTV so borrowers can qualify for the expanded program. FHA will also encourage lenders to make other arrangements, such as subordinate financing, to "fill the gap" between the existing loan balances and the FHA-insurable loan amount, HUD said. The refinanced loan amount backed by the FHA would be based upon a new appraisal.
Officials at HUD claim that since September 2007, FHA has helped pump nearly $68 billion of mortgage activity into the housing market, $28.5 billion of which was through FHASecure. FHASecure has helped more than 150,000 homeowners who are current or past due on their loans avoid foreclosure, officials said.
Democratic lawmakers were clearly not impressed, and said more needs to be done.
"There are reports that nine million homeowners are now underwater," said Senate majority leader Harry Reid (D-NV). "It is encouraging that President Bush is beginning to address the core of the crisis, but his proposal does not go far enough."
The expansion being thrust on the FHA during the housing crisis is putting the Depression-era agency into new territory, sources say. It remains to be seen how the agency will reinvent itself as lawmakers increasingly turn to FHA loans to fill the subprime lending gap.
From Chris Isidore at CNNMoney
, an analogy that might have been taken from earlier HW coverage:
Even FHA officials concede they don't know if the agency can handle the increased role. The FHA has been a small lifeboat helping a select group of home buyers, but it could be overwhelmed by the rush of new borrowers trying to climb aboard.
"That's a pretty good analogy," said Bill Glavin, special assistant to the FHA Commissioner. "It's pretty much uncharted water. We've never been asked to do these things before. We were already facing a lot of uncertainty, to be honest. It's going to be a whole new FHA, and there are going to be risks that go with it."
That new FHA everyone keeps referring to? Call it the new subprime.