Bulls & Blogs

With alacrity unbecoming of this Congress, the House of Representatives passed the Expanding American Homeownership Act of 2007 in September. After passage of the bill, Rep. Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity stressed its critical nature. "There is an affordable housing crisis in America. In recent months, that crisis has exploded beyond the poorest renters and homeowners to threaten the domestic economy." said Chairwoman Waters.

The Senate Banking Committee promptly passed its own version of FHA reform the very next day by a 20-to-1 bipartisan vote. Chairman Christopher Dodd promised to "fight for swift passage so that homeowners can get the relief they deserve."

But here we are more than a month later, and all that urgency seems to have dissipated. According to the Washington Post's Kenneth Harney in a 10/27 column, "the Senate FHA bill doesn't even have a number and has not been sent to the majority leader's office for scheduling a floor vote. A spokesman for Dodd, Marvin Fast, said committee staff work on the bill is underway, but he had no explanation about what happened to earlier promises of quick action to aid homeowners in distress."

Congress must have breathed a sign of relief when foreclosure filings dropped 8% last month. I hope they caught their breath again when it read that the September reading is still double the number reported a year ago and is the second highest monthly total on record.

The problem is still very real. HUD Secretary Alphonso Jackson estimates that 500,000 subprime mortgage borrowers could wind up in foreclosure when their interest rates adjust upward over the next 18 months. A consumer advocacy group pegs the number two to four times higher.

The FHA reform legislation would provide relief by raising loan limits in high-cost areas of the country, reducing required down payments, and opening up FHA lending to more competition. Many consider it a crucial relief measure for homeowners who need to refinance out of adjustable-rate loans to avoid foreclosure.

One cannot help but wonder if the Democratic Congress is more interested in manufacturing a campaign issue than in helping strapped homeowners.

The Democratic leadership held a news conference on 10/3 to bash the President for his handling of the mortgage crisis. Senate Majority Leader Harry Reid said, "This is a national crisis. Too bad it's taken so long to realize that we have a crisis." He joined Dodd and House Speaker Nancy Pelosi in calling for President Bush to make an emergency appointment of a "mortgage czar" to respond to rising delinquencies and foreclosures.

Where have these guys been? For two years, President Bush has sought legislation revamping the Federal Housing Administration but Congress has done nothing, according to Housing and Urban Development Secretary Alphonso Jackson. "To place even one family at risk is irresponsible, and Congress should stop playing politics with homeowners' financial security," Jackson said.

Almost everyone agrees that foreclosures are not in the best interest of anyone. However, a solution to the elevated number of mortgage delinquencies is complex. Many mortgage loans are packaged and sold as securities, and this limits the flexibility of the lender to restructure the loan terms.

The latest foreclosure statistics from RealtyTrac Inc. show that foreclosure filings rose 7% from Feb to Mar. Of the 149,000 filings posted nationwide in Mar, five states - CA, FL, TX, MI, and OH - accounted for half the total. The Feb number was down 4% from Jan but up 12% from Jan 2006. (RealtyTrac provides a "Heat Map" that shows the relative foreclosure activity across the U.S.)

Solutions

Can anything be done to stave off a rise in foreclosures? Most politicians, Democrat and Replublican, agree that a federal bailout of delinquent mortgages is not the answer.

The mortgage industry has responded with some creative solutions that will provide flexibility and allow borrowers to rework the terms of their mortgages. These initiatives come from a broad spectrum of players in the mortgage market.

FannieMae

FannieMae, the largest purchaser of home mortgages, is rolling out the "HomeStay" program, which will relax underwriting standards to help refinance homeowners who are facing payment shock due to resetting adjustable rate mortgages (ARMs). Fannie will overlook unpaid bills on borrowers' credit reports and offer 40-year terms to lower payments. Fannie Mae CEO Daniel Mudd said about 1.5 subprime borrowers could qualify in the next year to refinance under the program.

FreddieMac

FreddieMac, the second largest purchaser, is developing loan products for subprime borrowers that will limit payment shock by offering reduced margins, longer reset periods, and longer fixed-rate terms. Freddie expects to roll out the products by midsummer. Freddie Mac CEO Richard Syron said the company will purchase $20 billion in loans to help subprime borrowers refinance into more affordable mortgages.

NeighborWorks

The Mortgage Bankers Association (MBA) has partnered with NeighborWorks America, a national nonprofit organization, to help borrowers in danger of foreclosure stay in their homes. The partnership will support a national campaign that links homeowners to free counseling and establishes foreclosure intervention programs in cities with high rates of foreclosure.

Mod Squad

EMC Mortgage has created the "Mod Squad," a 50-member team of loan modification experts that creates custom solutions for borrowers who no longer can afford their mortgages. The team reaches out to individual EMC borrowers, publicizing their work through consumer and credit counseling organizations and educational meetings in cities where delinquencies are rising. The object is to search for changes in rates and terms that will permit the borrowers to remain in their homes, pay down their loans, and avoid foreclosure.

Washington Mutual

In an effort to help WaMu borrowers with subprime mortgages avoid foreclosure, Washington Mutual has committed to refinance up to $2 billion in subprime loans at discounted interest rates. The company said, "WaMu subprime borrowers who remain current on their existing loans and anticipate pending payment increases may apply for new discounted fixed-rate loans."

All these solutions have been announced in the last few weeks, and it is likely that others will appear in the coming weeks. If you are having trouble managing your mortgage payment, the bottom line is contact your lender or one of the organizations offering free homeowner counseling, such as the Homeownership Preservation Foundation. Alternatives are available, and people are available to help.