Bush Admin. broadens its own housing rescue program

Following great criticism that it was offering no alternative other than to veto the housing rescue bill which passed the House of Representatives last week, the Bush Administration has expanded its own program which relies on the FHA. From a CNNMoney.com story:

While Congress grapples with how to help troubled homeowners, the Bush administration is expanding a more modest effort to help at-risk borrowers.

The Federal Housing Administration announced changes last week to FHASecure, a program launched in August in response to a housing crisis that threatened as many as 2.2 million borrowers of adjustable rate mortgages (ARMs) with foreclosure.

The changes - the agency's second attempt since April to broaden the scope of FHASecure - underline a debate that is front and center in Washington: What's the best way to rescue borrowers at risk of losing their homes as the nation faces one of the worst housing crises in decades?

The House - led by Democrats and Republicans in states hit hard by foreclosures - passed a contentious foreclosure-prevention package last Thursday that would back as much as $300 billion in mortgages. A key Senate panel could consider the bill as soon as this week, but it faces resistance from Republican lawmakers and a veto threat by President Bush.

At the same time, the FHA on Thursday loosened its rules setting out the criteria that borrowers must meet to obtain an FHA-insured mortgage...

In August, FHA originally said it hoped that FHASecure would refinance 80,000 ARMs for delinquent borrowers who would otherwise likely lose their homes.

But the FHA's own data shows that the program has so far helped fewer than 2,000 of those homeowners.

"The current FHASecure numbers are woefully inadequate," said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, a community advocacy group. "It's not having an impact on the crisis."

The FHA, while acknowledging that it has helped fewer borrowers than it originally intended, says nearly 200,000 have gotten refinanced mortgages under FHASecure...

Until recently, FHASecure was available only to borrowers who fell into delinquency after low, teaser interest rates on their ARMs reset to much higher rates.

In April, the agency announced that it would no longer restrict the program to those borrowers. Instead, all subprime ARM borrowers who were no more than 60 days late - or 30 days late twice in a 12-month period - would be eligible for an FHA-insured loan, as long as the borrower had home equity, or cash, equaling 3% of the mortgage principal.

Also as part of this expansion, borrowers who were three months delinquent or late three times in a 12-month period qualified for FHASecure, but these borrowers needed to have 10% home equity or the cash equivalent. To enable borrowers to reach those loan-to-value ratios, lenders could voluntarily write down balances.

"The changes we have made with FHASecure will help us reach about 500,000 homeowners in total by the end of this year," said Roy Bernardi, the deputy secretary of the Department of Housing and Urban Development, which runs FHA, told the Federal Home Loan Banks Annual Directors Conference on April 29.

In the latest change, the FHA announced on Thursday that it would cover more people by pricing in the risk of default when screening potential borrowers.

Since its birth during the Great Depression, the FHA has charged all borrowers the same rate. Starting in July, the agency would initiate higher insurance premiums for borrowers with riskier credit profiles...

FHA-insured loans, even with insurance premiums, tend to be more reasonably priced than what borrowers would pay otherwise...After the added premiums are folded into the mortgage payment, the difference comes to only about $12 a month for that $150,000 loan...

The timing of the announcement coincided with the House passage of a bill sponsored by Barney Frank, one that takes a much more comprehensive approach to meeting the foreclosure crisis. Critics of the bill, including Bernardi of HUD, charge that it could cost taxpayers billions while the FHASecure program is relatively risk-free...

According to Frank's office, a stronger response to the foreclosure crisis is needed.

"We already acknowledged that there will be increased risk," said Steve Adamske, a Frank spokesman. "But the housing crisis is affecting the entire economy and will prolong any recession. FHASecure has not helped as many people as it needs to."

But will the expansion of FHASecure improve that record?

"It might save a few more borrowers," said Carr. "But in the context of reports of foreclosure filings up 112% this year, representing 600,000 homeowners, it's not nearly as robust as it has to be."

White House rejects Democratic housing package

The Bush Administration does not agree with the housing package proposed by Democrats, arguing that it puts taxpayers at risk. From a CNNMoney story:

A top housing official said Thursday that the Bush administration "strongly opposes" a Democratic housing rescue package, calling it a bailout that would expose taxpayers to excessive risk.

Deputy Secretary of Housing and Urban Development Roy A. Bernardi also indicated that President Bush would veto a bill sending $15 billion to states for the purchase and rehabilitation of foreclosed properties.

The comments, in separate letters to lawmakers, were the most forceful rejection yet by the Bush administration of Democrats' housing aid plans. And they were the clearest indication to date that the White House intends to put up a vigorous fight against a bill to let the Federal Housing Administration take on as much as $300 billion in new mortgages for financially strapped homeowners...

The Bush administration has previously questioned the scope and structure of the plan, although it backs the central concept: adjusting FHA's rules so more homeowners can refinance into government-backed loans.

An administration program, called FHASecure, made similar changes, but it is limited to borrowers who have good credit and histories of making their payments on time. It also doesn't require lenders to accept losses on existing mortgages.

Doing so, Bernardi wrote, would "significantly limit lender participation."

Frank has been working to draw Republican support for his plan, which he says has a good chance of becoming law this year.

But first, Democrats will have to deal with strong GOP philosophical objections to any measure that inserts the government into the housing maelstrom - especially one that could help people who are victims of their own irresponsible decisions.

"It will unfairly benefit a few homeowners and many investors and speculators at the expense of millions of careful borrowers and renters," said Rep. Spencer Bachus, R-Ala. "The message that we risk sending to financial institutions and individuals is that when they willingly take on excessive and ill-advised risk, the government will ride to their rescue."

Bush Admin. proposes sweeping overhaul of banking regulation

Apparently studied for over a year (and well before the sub-prime mortgage market started its meltdown), the Bush Administration has proposed an extensive overhaul of how the federal government regulates the banking system, although given a Democratic-controlled Congress, the process could take some time. From an L.A. Times story:

The Bush administration is proposing a sweeping overhaul of the nation's financial regulatory system, combining what is now an alphabet soup of government agencies into three streamlined regulators.

The proposal is the result of a year of study by Treasury Secretary Henry M. Paulson Jr. and has the support of the president, according to Treasury officials who spoke on condition of anonymity Friday...

The Securities and Exchange Commission and a handful of other federal agencies -- all formed in the Great Depression or earlier -- would be restructured and have their responsibilities redefined.

Oversight of the mortgage industry would be stepped up, and states could lose some of their authority to regulate banks...

An outline of the proposal, first reported by the New York Times late Friday and confirmed by Treasury officials, includes short-, intermediate- and long-term changes in the country's regulatory structure...

Many if not most of the changes would need congressional approval, which is far from certain. Both houses of Congress are controlled by Democrats, and this is a presidential election year, so any changes could take years...

In the short term, Paulson's plan proposes:

* Creating a Mortgage Originations Commission that would oversee the home-loan industry, making sure that state-level licensing conformed with a set of new federal minimum standards.

* Consideration of what kind of regulation should be put in place for investment banks that wish to borrow directly from the Federal Reserve.

Paulson has said previously that, although the Fed this month agreed to make loans to securities firms on a temporary, emergency basis, those institutions would have to be more heavily regulated if they wanted permanent access to Fed lending.

In the medium term, Paulson proposes:

* Eliminating the distinction between thrifts and banks under federal law.

* Bringing all state-chartered banks under federal supervision, either through the Federal Reserve or the Federal Deposit Insurance Corp.

* Federal oversight of insurance companies.

* Integrating oversight of the futures and securities markets by combining the Securities and Exchange Commission with the Commodity Futures Trading Commission.

Ultimately, the administration's proposal envisions paring down financial market oversight to just three regulators: a "market stability" regulator based on the Federal Reserve; a "business conduct regulator" based on the current SEC and CFTC; and a "prudential oversight" regulator focused on depository banks, encompassing the current Office of the Comptroller of the Currency and the Office of Thrift Supervision.

A major Wall Street trade group, the Securities Industry and Financial Markets Assn., said in reaction to Paulson's blueprint that there was "universal agreement that it is time to modernize and revitalize the current system" of regulation.

"The present regulatory framework was born of Depression-era events and is not well suited for today's environment where billions of dollars race across the globe with the click of a mouse," the group said.

Tax breaks for homebuyers gets support in the Senate

An idea floated by homebuilders last month to encourage home buying through the use of tax credits to offset the perceived risk has gained some support in the Senate recently. Although the Bush Administration appears publicly wedded to its "no government bailout, let the markets work" stance, some experts think they're running out of time. From the Wall Street Journal:

Efforts to create new tax breaks to encourage home purchases are gaining attention on Capitol Hill, as lawmakers gird for a major debate this spring on how best to shore up the nation's troubled mortgage markets.

The Bush administration has looked at the pros and cons of a tax credit but remains opposed to the idea, saying it prefers lawmakers act quickly on administration proposals that are languishing in Congress. However, pressure may soon grow on the administration to look again at the idea. Some Democrats, among them Michigan Sen. Debbie Stabenow, have signaled support for expanded tax benefits. And the idea is proving especially popular among Senate Republicans, who are hoping to carve a distinct role as Congress takes up housing issues and often find tax cuts an appealing option. The discussions reflect a growing sense that the housing, mortgage and credit mess may require more expansive federal government action...

Striking a more aggressive posture than the White House, Democratic leaders have signaled support for legislation to create special taxpayer-backed programs to help troubled borrowers refinance into more affordable, low-cost mortgages, among other things.

While interest is growing in the housing tax breaks, it is by no means certain that they will ultimately make it into the legislative package. Critics complain the federal tax code already provides ample support for homeownership, offering a deduction for mortgage interest and allowing certain capital gains on home sales to be excluded from taxation.

Within the Bush administration, some aides are concerned that such a tax break might simply benefit individuals who would buy a home in any case. Treasury spokeswoman Michele Davis urged lawmakers to give priority to other initiatives. "We continue to believe Congress should focus on completing" bills to revamp the Federal Housing Administration and create a new regulator with broad authority over Fannie Mae and Freddie Mac, she said.

Sen. Stabenow is pushing a measure that would create a one-time tax credit of $3,000 for first-time home buyers. Mr. Isakson's proposal is broader, providing a $5,000 tax credit for the purchase of a single-family home. That credit could be claimed for three years, raising the total tax benefit to $15,000.