Legislators in the House and Senate are working on the pieces of what promises to be a landmark housing bill, combining mortgage foreclosure relief, affordable housing, Federal Housing Administration (FHA) modernization, government-sponsored enterprise reform, and expanded tax incentives.
While the administration has issued a number of veto threats on individual bills, housing advocates are optimistic that the president will sign the final package, especially since the administration has been pushing hard for GSE reform and FHA modernization.
A key element in bills passed by the House (H.R. 3221) and approved by the Senate Banking Committee is a $300 billion FHA refinancing program for homeowners facing foreclosure because they can’t afford their current mortgage payments.
Lenders that agree to participate in the program would have to accept a write-down in the payoff of the existing loan. Under the House bill, the FHA loan would generally be limited to 85 percent of the current property value, while under the Senate legislation, it couldn’t exceed the lesser of 90 percent of value or the amount the borrower can repay.
Both bills include safeguards designed to exclude speculators and others who may deliberately default on their mortgages in order to get out of a house whose value has plummeted. In addition, they have provisions for the government to get some of its money back when the refinanced homes are sold.
Under the House bill, if there are sufficient sales proceeds, the owner would pay an exit premium equal to the greater of 3 percent of the original FHA refinancing mortgage amount or 100 percent of the net proceeds in the first year. The amount would drop to 80 percent in the second year, 60 percent in the third year, and 50 percent in the fourth and subsequent years.
Under the Senate measure, the Department of Housing and Urban Development (HUD) would get a portion of the equity attributable to the write-down of the loan (100 percent in the first year, scaling down to 60 percent in the fifth and later years) and half of any appreciation in the value of the home.
Both bills would establish a Federal Housing Finance Agency (FHFA) as the new regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. For Fannie Mae and Freddie Mac, the FHFA would take over the Office of Federal Housing Enterprise Oversight’s responsibility for safety and soundness and HUD’s responsibility for housing goals and new programs.
In addition, the legislation would create new affordable housing funding requirements for Fannie Mae and Freddie Mac. The House bill would require the two corporations to make annual contributions equal to 1.2 basis points for each dollar in their mortgage portfolios to an affordable housing fund to be operated by the FHFA. The funding requirement would be limited to the 2008-2012 period.
The Senate bill, on the other hand, would create a permanent annual funding requirement equal to 4.2 basis points for each dollar of the unpaid principal balance in new business purchases, with 65 percent of the money to go to HUD for a housing trust fund and 35 percent to the Community Development Financial Institutions Fund. Once in that fund, the cash would be used for a capital magnet fund to attract private capital for economic development and affordable housing activities.
The housing trust fund could also receive money from other sources approved by Congress, such as the FHA and appropriated funds. As a result, the fund would be similar in structure to the national affordable housing fund approved by the House in a separate bill (H.R. 2895) that wasn’t rolled into the broader House foreclosure relief legislation.
Over the 2009-2011 period, however, a portion of the Fannie Mae-Freddie Mac funding contributions would be set aside to cover any losses from the FHA refinancing program.
Additional elements of separate House and Senate bills that could be part of an omnibus bill include FHA modernization, which would revise downpayment and mortgage insurance requirements and restructure the FHA Title I manufactured housing loan program; tax incentives, including temporary expansion of the lowincome housing tax credit and housing bond programs, with authorization to use bond proceeds to refinance subprime home mortgages and tax credits for homebuyers; and funding for state and local governments to acquire and rehabilitate vacant foreclosed homes.
Keeping disaster subsidies in place
HUD won’t phase down subsidies for some families participating in the disaster housing assistance program (DHAP) for victims of hurricanes Katrina and Rita.
DHAP provides aid for families who originally received post-hurricane housing assistance from the Federal Emergency Management Agency (FEMA). Original program guidance provided for incremental subsidy reductions of $50 per month through the end of DHAP March 1, 2009.
Most families will still see their subsidies phased down under that schedule. However, in Notice PIH 2008-21, HUD announced that it won’t reduce assistance for families moving from FEMA housing during the DHAP transition period, including those vacating travel trailers and mobile homes because of formaldehyde problems.
Subprime refinancings a possibility
Federal Home Loan Banks could set up programs to provide relief to struggling homeowners by restructuring or refinancing subprime or nontraditional mortgages under proposed revisions to the Federal Housing Finance Board affordable housing program regulations.
To be eligible for refinancing or restructuring, a loan would have to be an adjustable-rate mortgage on the borrower’s principal residence that was originated on or before July 20, 2007.
The loan would have to have gone through, or be scheduled for, a rate adjustment or recasting of principal and interest that would result in housing costs exceeding 45 percent of the family’s income. The family could not have more than $35,000 in financial assets, with certain exceptions, and its equity in the home could not be more than $50,000 or 20 percent of the appraised value, whichever is higher.
The refinanced or restructured mortgage would have to be a fixed-rate loan with a minimum term of 30 years, a maximum loan-to-value ratio of 97 percent, and an interest rate no higher than the average rate in Freddie Mac’s weekly mortgage market survey.
Veterans’ voucher policy changes
HUD has developed policies for the Sec. 8 Veterans Affairs Supportive Housing (VASH) voucher program, which will provide housing assistance for homeless veterans receiving services from a VA medical center.
Based on instructions in the fiscal 2008 appropriations bill, which provided $75 million for the program, HUD has waived the basic VASH requirement that participating homeless veterans must suffer from chronic mental illness or substance use disorders.
Admissions to the VASH program won’t be subject to the general Sec. 8 tenantbased assistance targeting requirements for households with incomes no higher than 30 percent of area median income. However, VASH participants within that income range can count toward the target.
Public housing authorities (PHAs) won’t be able to establish separate waiting lists or local preferences for VASH participants because they will be referred to the PHAs by the VA medial centers providing the services.
In addition, PHAs won’t be able to deny VASH assistance because of violations of voucher program rules or for alcohol abuse or criminal activity. However, the ban on housing assistance if a household member is subject to a lifetime sex offender registration requirement will still apply.
Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The twopart publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.