UPDATE:=US Housing Officials Praise Obama Housing Plan
19 März 2009 - 4:23PM
Dow Jones News
Top federal housing officials argued the Obama administration's
housing plan would help millions of Americans avoid foreclosure
before a U.S. House panel.
"With the president's comprehensive strategy to rebuild the
housing market and revive the economy, many of these homeowners
will have a fighting chance to stave off foreclosure," Department
of Housing and Urban Development Director for Single Family Asset
Management Vance T. Morris told the House Financial Services
Committee's Subpanel on Housing Thursday.
The plan is "a major step forward in reducing preventable
foreclosures and stabilizing the housing market," Federal Housing
Finance Agency Chief Economist Patrick Lawler said.
The administration is facing intense pressure to stabilize the
housing market, as independent analysts expect the foreclusure
crisis to deepen with rising unemployment. More than 8 million
homes will enter foreclosure over the next four years, according to
Credit Suisse (CS).
The Obama administration's plan, unveiled earlier this month,
aims to help up to 9 million people stay in their homes. Under one
program, underwater homeowners will be allowed to more easily
refinance into lower-interest rate mortgages. Another program would
provide $75 billion in incentives to borrowers, mortgage servicers
and investors to complete loan modifications, which conform with
certain administration guidelines.
Aside from Morris and Lawler, housing experts and
representatives from think tanks and advocacy groups testified on
the merits of the plan. Some criticized the plan as being too
generous to borrowers and lenders, while others said the program
was not ambitious enough.
Fannie Mae (FNM) and Freddie Mac (FRE), which own or guarantee
more than half of outstanding U.S. mortgages, last fall unveiled a
"streamlined modification program" which sought to lower monthly
mortgage payments down to 38% of borrower income. FHFA, which
oversees Fannie and Freddie, hoped that the program guidelines
would be widely adopted by private-sector mortgages. But FHFA
officials now acknowledge the plan has had limited impact.
"It is clear that the program needs to be more aggressive to
reach more troubled borrowers," Lawler said. He cited two problems
with the approach, saying it targets only borrowers who were
already 90 days past-due on their mortgages and that it does not
lower mortgage payments enough for strapped borrowers.
Both problems will would be rectified by the Obama housing plan,
Lawler argued, because it would help borrowers who are still
current on their loans, but at-risk of default. It also provides
government funds to lower mortgage payments to 31% of borrower
income, while Fannie and Freddie sought a target debt-to-income
ratio of 38%.
Fannie and Freddie have key roles in implementing the Obama
housing plan. The government-controlled mortgage companies will
monitor servicers' compliance with the program guidelines. In
addition, they will absorb all the costs of any modifications of
mortgages the companies own or guarantee. Fannie Mae will act as
paying agent, disbursing the financial incentives to servicers who
have modified loans.
As administrators of the modification program, Fannie and
Freddie will soon issue new standards to servicers of so-called
private-label securities, or PLS, which are backed by mortgages the
enterprises don't own or guarantee. The new standards will help get
around a major obstacle to loan modifications - agreements that
bind servicers to modify loans in these securities only if they
follow industry standards, Lawler argued.
Fannie and Freddie have taken steps to beef up or transfer staff
as well as prepare their systems, erect firewalls and in order to
perform their new roles, Lawler said. FHFA will create a special
team of trained examiners to monitor the program, analyze any data
and detect fraud.
The loan modification program relies on a net present value
test, among other criteria, to determine which borrowers are
eligible. It is unlikely that many homeowners who have lost their
jobs will qualify for a loan modification. Borrower advocates have
been asking what options the administration will provide for such
borrowers.
HUD's Morris addressed that concern in his testimony, saying the
Treasury would soon unveil a plan to help borrowers ineligible for
a government-assisted loan modification move to more affordable
housing. The plan will include borrower and servicer incentives to
complete short sales and deeds in lieu of foreclosure, so that
foreclosure can be avoided. There will be the option of
transferring the property to nonprofit housing agencies, Morris
said.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com