Consumer Law

Times Articles on Mortgage Plans

By Jeff Sovern

Today's Times reports, in "House Panel Approves Bill to Assist Borrowers," that the House Financial Services Committee, "pushed forward on Thursday with an aggressive effort to help troubled homeowners, approving legislation that would make up to $300 billion in federally insured loans available to refinance the mortgages of borrowers in danger of foreclosure."  The Times summarized the bill as follows:

The Democrats? legislation seeks to help homeowners by requiring lenders to reduce the principal balances for borrowers at risk of default. The bad loans, typically with high adjustable rates, would be refinanced into more affordable 30-year fixed-rate loans insured by the F.H.A.

The new loans would be limited to no more than 90 percent of a property?s value, based on an updated appraisal. The government would retain a stake in any future sale of the property, worth 3 percent of the initial loan balance or 50 percent of net profit from a sale, whichever is greater.

Borrowers would have to demonstrate the ability to repay the new loan, and if they default, they will forfeit the property. Democrats say the plan could help as many as 1.5 million homeowners.

Yesterday's Times reported here on a proposal by Sheila C. Bair, the head of the FDIC "to permit the Treasury Department to lend directly to as many as a million homeowners to help ease the housing crisis."  The paper observes that the "Bush administration and Congress reacted coolly to" the proposal.  Meanwhile, a report on Wednesday, "Who is Getting the Mortgage Aid?," on the FHA Secure program, stated that "Fewer than 2,000 homeowners at risk of foreclosure have been helped by a Federal Housing Administration program that President Bush promised would help homeowners who had fallen behind on their mortgage payments, federal housing statistics show."  And earlier this week, on Monday, the lead article in the Times, titled "Lenders Fight Stricter Rules on Mortgages," reported on opposition to the Fed's proposed subprime mortgage lending regulations.  Some excerpts:

* * * One common industry criticism is that at a time of tight credit, tighter rules could make many mortgages more expensive by creating more paperwork and potentially exposing lenders to more lawsuits.

To the chagrin of consumer groups that have complained that the proposed rules are not strong enough, the industry?s criticism has already prompted the Fed to consider narrowing the scope of the plan so it applies to fewer loans.

* * *

Earlier this month, as the comment period was about to close, the Fed was deluged with more than 5,000 comments, mostly from lenders who said the proposals could affect loans that have not presented problems. Some bankers and brokers also said the rules would discourage them from lending to some creditworthy borrowers.

Full post as published by CL&P Blog on May 02, 2008 (boomark / email).