Bill HR 5830. Good, bad or too soon to tell?

Reserved Parking For "The Lovely Wife"...TLW...ROAR! 

Blog Boy...

What are my thoughts? Nada. Zero. Zip. I don't have a thought.

Not enough input :)

Over :) 

TLW...ROAR!  

If they are going to be in it if there is continued loss, then I see no problem with them taking part in the upside.

Interesting.....when I did commercial mortgages we did a very similar program where we would lend the borrower the money to build the shopping center or whatnot and the insurance company that put up the money would be entitled to a percentage of the ownership.  We did one, I believe, where the insurance company ended up owning 80% of the project.  Being that it was a $50,000,000 project, 20% was still a good chunk of money...I guess that it comes down to the golden rule...he with the gold, makes the rules!

Bob Mitchell

ValueList Real Estate Services, Inc. 

P.S.  I figured that I had better make this comment before this post gets featured and I have to stand in line....;-) 

Ok, my question is how many people would qualify for that 90%.  Second,  FHA...would they be a second lien holder or primary.  Not understanding that part...that could potentially be worst.  'If their lender will take a short payment'

Will they have to pay taxes on that difference like when someone settles debt?  If they still end up selling, they would still be over value with the 3% exit fee.  Just thinking out loud.

I'm with TLW, not enough info.  My head hurts now.

LOL Steff...

I keeping forgetting to tell him when it's Friday :)

Friday is not a Real Estate day in my little world :)

My head hurts too but I'm sure it's because he won't stop talking :)

TLW...ROAR! 

Bryant- I have been studying this bill and still have not come up with an exact opinion on it. The clause about, if the lender approves the short, gets the lender out of doing the deal so they are not mandating the market in that regard. But the property has to appraise out at only 90% of the value, well, not in Poinciana or many other parts of Florida! Or am I missing something here? 

TLW,  I was thinking the same thing...It's Friday!

The concept is interesting. I am actually going to read the document and see if I can wrap my head around it.  Splitting the equity might be acceptable to people as long as the market stays flat. If the market was to go crazy again I bet people would scream bloody murder about having to give part of the profits to FHA.... They would forget that it was what might of kept them in their home or got them in their home in the first place.

Best,

Scott 

Hi Byrant you make me go look up the Bill...the location has changed  here is the link to the location for those that are not familiar with look-up sourcing. http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110nVqFqD::

This is 10 pages and takes a bit of time to digest.  You have done a great job in the outline in your post.  It will depend on how the mortgage lenders deal with this to the success and public acceptance rate of the bill.

 Nice post Bryant.

Parked til Monday.

I would like the people to save the house but when the government get in the mix I'm afraid I am not sure it is worth it. If they can help the people fine but stay out of the long term gains.

This sounds similar to the grants that Rural Development (formerly Farmers Home)offers, there the forgiven part reduces every year up to year 10 of ownership.  they have managed this program successfully for years.

The only time I have ever seen a problem is in cases of divorce or job relocation, where there was not enough equity to pay back the "forgivable second grant" in a desparate situation - we were able to get them to reduce their interest in one case with an explanation of hardship, where the seller broke even only.

 I need to do a little more reading on this, but it sounds like it could be of help to many, if not too onerous. 

Hopefully we can get some good insight when we hit the Capital in mid May. I will see what our talking points are when we visit with our Reps.

We're from the government and we're here to help you...

Actually, I think I want to park, too.   

Thanks Gary for the link. Yours has just died as well. I guess they have time limits on them. The first link in my post still works so I go in and change the bottom link to the same thing. Thanks.

I appreciate you guys stopping by. Looks like we have some studying to do!! I hadn't even heard of this until yesterday. It was sent to me via email from a CountryWide broker. It does sound interesting. I have many sellers that need help right now so maybe this will be an option for them.  

I have not head of this yet butit does sound interesting.

Now See...

I am not the only one doing the weekend parking thing :)

By the way Blog Boy...

If you ask me what time it is one more time I am going to shoot your pool float :)

TLW...ROAR!

Well, let's think about this for a minute. This FHA 90% LTV bailout or refi would probably only benefit those who don't have a 2nd. How many is that? Very few. It says it will provide "fair incentives for junior lien holders." Who is providing those fair incentives?

What about those that are in a "declining area?" What will that 90% LTV number be if they'v lost 15% already sinced they purchased, say 3 years ago?

We tend to think, "Oh, you can refi your $200K loan for $180. The lender should be agreeable." But hangon. The area may have "declined" in value 15% since they purchased. Then, it's 90% of $170K which is $153K. That first lender may not be so agreeable after all.

This is really good news for a small group of people--those without a 2nd who are NOT in a declining area AND can get their lender to agree--IMO.

I didn't park. I deserve more points, "Blog Boy."

I am ok with the basis of the idea- it is similar to any of the Downpayment assistance program offered by the state. Those have a cutoff on the time the seller has to worry about it. 6 years I think. And I think there is a repayment on the Habitat For Humanity homes too. So the fundamentals are all there. Not sure about the details though.

I saw it coming.  This could be a very good thing.

Hi Bryant,

On the surface I don't see a big problem with it. We too have participation loans with our city for example, and/or paybacks on others if sold early. I sort of think most anything that could keep people in their homes is a positive proposition.

Consider the alternative.....

These people will lose their homes, with nothing to show. FHA is already taking in many high risk loans..... why shouldn't they get a piece of the action?

I think we all have a lot of great questions on this one.... it seems on the surface that it may help - but at what cost and for how long - will this really make a difference or just delay the inevitable?

BB, when the government acts, it is a wait and see how the courts interpret what is going on.  I am more on the side of Karen Luke with her points above.  More flash with out much substance.  AJ

Bryant - Tom Burris makes a good point, though I wonder how the 'Health' of the FHA will hold up with some of this...

First --  Kudos to you, Broker Bryant, for taking the time to actually try to understand the content of the bill.  If more legislators took the time to do that, we would probably have more sensible laws, and fewer bridges to nowhere.

Second -- I have to admit that the legislature seems to be on the right track with this one.  I would like to see them actually work out a program that would allow borrowers to lower their interest rate by increasing the equity share that the lender would have.

Shared equity is not really a new concept.  It is just something that FHA could not offer before now. 

Prima facie, this seems to be a good move.  The potential problem I see is that it is limited to "distressed Homeowners."  This could fly in the face of the "equal protection under the law" concept -- essentially granting additional options (protection) to families that can't meet their financial obligations, while familes that can meet their financial obligations receive no such protection.  This bill might end up not meeting "constitutional muster" unless another "protected class" (such as those defined in the Bill of Rights) is created.  If that does happen, we will see a lot of other "ripple effects" in other aspects of the housing industry, such as fair housing practices.

There's my 2 cents, for what it is worth...

I think it is great for the FHA and a person who is struggling to stay afloat.    But will the homeowner pay there mortgage payment afterwards.

In looking at the actual bill, it seems it is not as useful as I had hoped.  It in a "bandaid" program, with designed obsolesence.  Only loans originated on or before December 31, 2007 will be eligible for this type of refinancing.  This essentially creates a program that addresses prior problems, but does nothing to prevent similar problems from arrising in the future.  Such is the short-sighted nature of current legislators, it would seem.

Hi Bryant,

My initial take on this bill is that it has some substance  to it....probably more than many of the other solutions that have been presented. I believe that it may be a  little slow to develop but as the housing bubble/mortgage meltdown continues or remains stagnant I believe that this concept will gain some steam.......a major part of our solution to this mess has to be centered on keeping people/families in their homes!!

It took me some time to "wrap my head around it".  My head was full of images of horses yesterday.

I fail to see how any government program can be an improvement over the market.  Frank wants to write down mortgages.  Unfortunately, it isn't some mortgages that need to be written down.  The market needed to come down and it has been accomplished through normal market forces, not by a government designed selective process. 

The Frank bill requires that lenders accept 85% of the loan balance.  They do that and sometimes less in a short sale or foreclosure process.  Under the Frank proposal, the mortgage holder has to agree to write down the mortgage.  The borrower gets a new FHA backed mortgage at the new lower amount.  Fine for the borrower.  They get a 15% reduction in their mortgage balance and a significantly lower monthly payment.  The public funds the program at a cost of $300Billion. 

If the borrower defaults again, and I believe it can be predicted that many will, if they have an FHA loan, they'll be eligible for the FHA Forebearance which would give them a year or two of free occupancy while the unpaid mortgage payments and accrued interest mount to astranomical amounts not feasible for the owner to pay.  So, there's another foreclosure and HUD winds up the owner of the property which would be sold at the HUD auction.  That process is about 2 years. 

Seems to me that the market solution of default/foreclosure/bank owned sale is preferrable. 

Of course the present system of market solutions doesn't help the government grow, doesn't take defaulting borrowers off the hook and doesn't favor the big government solutions favored by too many. 

The bill reads like a solution, but I don't buy it.  I'm not even sure it's Constitutional under the equal protection clause.  What I'd like to know is which industry lobby drafted the bill and then we'd know who Frank is fronting for. 

Bryant,

As I ponder H.R. 5830 a little further, I believe that every effort should be made to streamline this process as much as possible (some automatic process subject to specified conditions). Maybe even a major lender pool.  Furthermore, there might be good argument to set aside or table pending foreclosures for a set period of time by mandating  that lenders/servicers extend this opportunity to defaulted homeowners as part of offering this opportunity to cure as part of a documented effort.

I have to agree with what Lenn has written.  I read the Bill's summary and was concerned about some things, so therefore started reading the bill.  Let me start like this, the premise behind the bill is all well and good.  The problem that I see is that this bill is designed to help the lenders moreso than the people in the long run.  

This is part of the purpose of the bill:  to require existing mortgage loan holders to take substantial loan writedowns in exchange for having the Federal Government and the borrower assume the ongoing risk of the refinanced loan; to provide a fair level of incentives for junior lien holders to provide the necessary releases of their lien interests, in order to meet program requirements that all outstanding liens must be extinguished, and thereby permit the refinancing to be completed

Now, some of these will have to be necessary for a bill of this purpose to proceed, especially on a voluntary basis.  The cost of this bill as Lenn also pointed out is just way to high for the general public to have to absorb.  Additionally, I have a great concern as to the chance of default again by these borrowers.  

Reading the Cost Estimate of this bill, I came across this point:   This legislation also would require FHA to charge the borrower an annual fee of 1.5 percent of the remaining insured principal balance each year.  Is this going to be factored into the loan or how is this going to be paid and when?

I don't want to see people get foreclosed on, but government intervention is not the answer.  It just creates bigger government and more bureaucracy.  

BB,

In my opinion "Any help,iswelcome right now"...

The bill will probably not make it.

I just want to put some fictional but believable numbers out here  to get a better grasp of this idea (maybe I should say Law)  If someone is in debt on a property for $400,000 but the market says the value is at $300,000; the FHA will get into the action at $270,000 if the bank will write off $130,000.  Now, when the market levels off and starts rising, immediate selling will get the FHA a piece of the pie.  I f the homeowner sticks it out for specified time he can keep part of the appreciation up to all of it.  If the bank takes the write off he can have the immediate savings of not having to go through foreclosure proceedures and eventual selling at REO pricing. 

Interesting, VERY interesting!

First - there are so many proposals/programs out there now that I think agents should use the "deal with a professional" rule and look to a reputable lender for interpretations and ramifications.

Second - so many of these proposals seem to be for lender-protection/bailout rather than the homeowners. I think they are dragging out and prolonging any recovery and contributing to a declining market. Let the boom fall to the bottom so we can begin recovery.

Third - it just seems wrong to be doing so much for people who made wrong financial decisions, and doing nothing for those people who scrimped to have a fixed rather than an adjustable, nothing for those people who are working 2 and 3 jobs so that their payments will stay current.  

>so many of these proposals seem to be for lender-protection/bailout rather than the homeowners. I think they are dragging out and prolonging any recovery and contributing to a declining market. Let the boom fall to the bottom so we can begin recovery.

this doesn't bail out lenders. it saves homeowners. 

>it just seems wrong to be doing so much for people who made wrong financial decisions, and doing nothing for those people who scrimped to have a fixed rather than an adjustable, nothing for those people who are working 2 and 3 jobs so that their payments will stay current

How many homes did you sell to people who made wrong financial decisions? 

It actually does quite a bit for for those people who have fixed rates, etc. Every distressed sale that doesn't hit the market is good for every other homeowner in the neighborhood.

"Let the boom fall to the bottom so we can begin recovery."

I strongly disagree with that statement. It make about as much sense as a pilot saying, "let the plane crash so the engineers can build a new one."

We have a responsibility not only to fix what is broken now, but to do it in a way that will prevent the problem from recurring.

The reality of this is that it will have litttle to no impact. The FHA can endorse any program that it feels is appropriate however the lenders do not. The horse has already left the barn on the issue and you will not find to many interested lenders that will clear this re-finance to close. The FHA say's it still does many things, however they do not lend the money. Great politics that would have been better suited 1 year ago.

Broker Bryant, Is this bill to help the Lenders or Homeowners? As I was reading the bill I got a little lost. Now mind you, it's Saturday morning here and I have not even finished my first cup of coffee, :0)

I read this and think it is rather clever as far as "holding time" goes.  This buys 5 years for the homeowner with the absolute intent to keep their property.  I think the requirement should be that the home is owner occupied currently, has been owner occupied since it was bought and will be owner occupied until it is sold.

My thoughts since most (not all) of the homes going back to the bank are rentals or investment props.

Lets see the amendments before saying. Its better to make the feds a watch dog which they continue to fail at.

Excellent comments! I posted this because I truly am clueless on aLl the ramifications of this Bill. It sounds good to me BUT I'm sure there is more to it. I think Lenn hit on some of my major concerns.

As a side note, I have some very elderly folks that I have written about several times, The Lovelys. They have been struggling for 2 years now to be able to keep their house, they have lived in for 16 years. They did make some bad decisions along the way to get them to where they are now. Which is in their 80s on a fixed income and owing about $190,000 on a house worth $139,000, maybe. They have no other assets or savings. Anyway, about 2 months ago I wrote a post about NACA.  Based on the responses I received on that post I hooked The Lovelys up with NACA and a loan counselor. Just last week they signed a modification on their 1st mortgage that was negotiated by NACA and ended up getting a 30 year fixed at 7.25%. It was previously an ARM that had just adjusted to 11%!!!! Their payment has dropped about $300 a month which is about 10% of their fixed income. So it was a big deal for them.

THE LOVELYS AND NACA.

The reason for this post is the same. To try and find out as much as I can about programs that may be able to help some of the folk in Poinciana that are struggling. Heck I can't sell any houses right now I might as well try to help some people. Maybe I'll get paid later:) 

Hey BB,

I think it is a beneficial way that FHA is trying to bail people out and then reap some profit when the house sells, if there is any profit .... BUT I doubt many people will be able to take advantage of this program. Back when the mortgage business was hopping and people were buying properties like hot cakes, most borrowers qualified via a "stated" loan and therefore did not have to verify their income. Now, in order to qualify for the FHA program it will be a full doc qualification. .... Most of these people won't qualify. Another thing is that I doubt many lenders will openly "give up" money so that a home can be refinanced at a realistic value. Most of the people at these lending institutions do not think about the consequences very clearly and will most likely just let the home go to forclosure than to openly accept a loss.

Just my opinion.

Sean Allen

Great topic.  The biggest issue I see is the 90% value / loan amount.  I have clients who's home are at least 30% underwater!  $500,000 loans and I can't even get the appraisals on the home to even come close.  What we need congress to focus on is how is the short sale and foreclosed property going to be evaluated for the FHA Short Refi Program, and is FHA saying 90% of value or 90% of Loan balance?  If it is 90% of value I think it is going to be a hard sell to the current mortgage holder to do this.  For example 500K loan, house appraises at 350K + take 10% off for the FHA program, that is potentially, a 185K write down for a bank... Unsure if they will go for it.  But it would SOLVE some huge issues.... 

George, My understanding is that this is 90% of VALUE. While it is certainly a huge write off for the original lender it may be better than the alternative.....which is foreclsoure. This is designed for distressed owners so their lender is going to have to deal with a loss one way or the other.

Too soon to tell because it still has a lot more hoops to go through including a re-investigation for the Federal Reserve Board.  My feelings will be a lot of mashups and tweakings are going to be made but this is definitely something to keep your eye on for the future. 

It's a little late in this thread to ask a question...

But...I'll ask it anyway.

                                                     Is this the Bill the President was babbling about last week on TV?

TLW...ROAR!

Unintended consequences are the key words to ANY government proposal.  It is something that is always wandering around the room, not in direct view, but seldom out of sight.  This bill looks like it will have some bad unintended consequences...

I see you got over your constipation without any ill effects.

I'm back again to see what others had to say. A few seem to be concerned about the major issue I'm concerned about ---the slippery slope of the appaisal in the "declining areas." That is a huge issue when you are talking about a 90% Loan-to-value ratio. What is the value? 90% of what?

The value number is a big variable in some areas. Then, you've got the whole issue concerning some getting helped and others not helped.

Anybody see law suits coming?

>Most of these people won't qualify.

That would be true if we were talking about the original loan amount. I deal with lots of distressed sellers that would qualify for an FHA loan at 90% of the CURRENT value.  CBO estimates that this would save 500,000 homeowners.

>I doubt many lenders will openly "give up" money so that a home can be refinanced at a realistic value.

The money is already gone. The choice for the lender is short sale, foreclosure or a short refi, which is what the FHA program is.

>you will not find to many interested lenders that will clear this re-finance to close

Why not? Unlike most of the other loans they did and are still doing, these loans are insured. 

>This bill looks like it will have some bad unintended consequences...

Such as? 

I read that post.  It was very interesting.  He mentioned the fact that Short Sales have been around forever and only now are problematic. 

I was with Bryan and Tom on this one.  But my comment that I was going to make was the same as Russ's comment above, "But will the homeowner make their payment thereafter".  It's nice to have the help there, but I think so much of the bigger problem is, "Could these folks truly afford the house in the first place".  Is it prolonging the inevitable for some?

I don't think the problem is just with the adjustables as Sharon points out above.  While this is the focus of many recovery programs, I am sure there are folks who were able to get a conventional mortgage (because getting a conventional back in the early 2000's wasn't that hard- remember?) that are having problems now too.  It's not because all of those folks scrimped and saved, they just didn't have bottom of the barrel credit.

Interesting post.  My thoughts, I don't really know they're rambling around in alot of different directions.  With all the short sales and foreclosures, it will definitely be interesting to see how this progresses.