Saturday, May 17, 2008

New FHA Program

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The Bush administration has unveiled a plan that would expand the FHASecure program to help up to 100,000 more at-risk homeowners by the end of 2008. The program expansion would allow the FHA to insure new mortgages if a lender voluntarily wrote down the mortgage principal to a maximum of either 90 percent or 97 percent of the new value, depending on the borrower's risk profile, according to Federal Housing Administration Commissioner Brian Montgomery.



Montgomery’s comments came at an April 9 House Financial Services Committee hearing, which was held in response to a broader proposal by panel Chairman Barney Frank, D-Mass. Frank’s proposal would have the FHA back from $300 billion to $400 billion in restructured loans for distressed borrowers if lenders were willing to take a substantial loss on the mortgages. Frank estimated that his proposal would reach between 1 million and 2 million borrowers.



The legislation first announced by Frank in March, was divided into two measures: H.R. 5830, the FHA Housing and Homeowner Retention Act, and H.R. 5818, the Neighborhood Stabilization Act of 2008.



H.R. 5818, introduced by Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters, D-Calif., would provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country.

H.R. 5830 would expand the FHA program to help refinance at-risk borrowers into viable mortgages and also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. Specifically, H.R. 5830 would institute a voluntary program that would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages. To be eligible for such monies, existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower. Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.



As for new FHA-insured loans, they would have to be properly underwritten and based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee).




A committee mark-up session and vote on the two measures was scheduled for April 30 and May 1st. Results were not available at press time, but will be forthcoming in subsequent issues of Appraiser News Online.

New FHA Program

www.valuation-expert.com

A bipartisan amendment that would ensure an independent and competently performed appraisal process has been added to pending foreclosure prevention legislation. On April 24, the House Financial Services Committee agreed by voice vote to add the amendment to H.R. 5830, the Federal Housing Administration Housing Stabilization and Homeowner Retention Act. The amendment, backed by the Appraisal Institute, prohibits all parties involved in a real estate transaction from improperly influencing an appraiser and requires all appraisals in connection with this legislation to be performed by qualified appraisers who have demonstrated a high level of valuation competency, according to the Uniform Standards of Professional Appraisal Practice.



H.R. 5830 authorizes the FHA to guarantee billions of dollars worth of refinanced loans if lenders reduce loan amounts to reflect reduced home values. The measure would require banks to make less money on the loans but it would also reduce their credit exposure, while helping families stay in their homes.



The amendment, offered by Reps. Paul Kanjorski, D-Pa., and Judy Biggert, R-Ill., was also sponsored by Reps. Gwen Moore, D-Wisc., and Andre Carson, D-Ind.



“We applaud the leadership of the amendment sponsors for recognizing the importance of accurate appraisals in the pending foreclosure prevention legislation,” said Bill Garber, Appraisal Institute director of government and external relations. “This legislation has real potential to help both homeowners and financial institutions facing distress, and much of the proposal hinges on competent and reliable appraisals. When many local areas find themselves in declining markets, it is absolutely essential that Congress require the use of competent appraisers.”



The bill was expected to be on the House floor for final vote on Wednesday, April 30. Results were not available by press time. Discussions are underway in the Senate on companion legislation to H.R. 5830, where several other questions will likely be addressed at the committee level, including what property standards (FHA or conventional) will be applied to the appraisals and who will actually order the appraisal. Given the uniqueness of the program, whereby lenders are encouraged to write down the balance of loans to current appraised values, some have questioned the viability of allowing lenders to order the appraisal, or whether that function would best be performed by the FHA

Appraisal Standards

Administration Unveils Proposal to Expand FHA Loan Program
The Bush administration has unveiled a plan that would expand the FHASecure program to help up to 100,000 more at-risk homeowners by the end of 2008. The program expansion would allow the FHA to insure new mortgages if a lender voluntarily wrote down the mortgage principal to a maximum of either 90 percent or 97 percent of the new value, depending on the borrower's risk profile, according to Federal Housing Administration Commissioner Brian Montgomery.

Montgomery’s comments came at an April 9 House Financial Services Committee hearing, which was held in response to a broader proposal by panel Chairman Barney Frank, D-Mass. Frank’s proposal would have the FHA back from $300 billion to $400 billion in restructured loans for distressed borrowers if lenders were willing to take a substantial loss on the mortgages. Frank estimated that his proposal would reach between 1 million and 2 million borrowers.

The legislation first announced by Frank in March, was divided into two measures: H.R. 5830, the FHA Housing and Homeowner Retention Act, and H.R. 5818, the Neighborhood Stabilization Act of 2008.

H.R. 5818, introduced by Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters, D-Calif., would provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country. Appraiser Charlotte, Mecklenburg, Union Counties.

H.R. 5830 would expand the FHA program to help refinance at-risk borrowers into viable mortgages and also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. Specifically, H.R. 5830 would institute a voluntary program that would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages. To be eligible for such monies, existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower. Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

As for new FHA-insured loans, they would have to be properly underwritten and based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee).

The program will run for 2 years (with flexibility for additional 6 month extensions not to exceed 2 more years). For more information on H.R.

A committee mark-up session and vote on the two measures was scheduled for April 30 and May 1st. Results were not available at press time, but will be forthcoming in subsequent issues of Appraiser News Online.


For an FHA approved appraiser in your area, contact www.valuation-expert.com