Those stark numbers clearly deminstrate the challenges ahead for the lawmakers attempting to offer some relief to their voting base but also hint at what the next administration will be facing after the election. While the proposed loan program would help some homeowners, analysts say it would touch only a small percentage of those in trouble. 

According to Josh Emmons, a CFB Loan Services Manager, “this home financing bill would assist mortgage lenders and homeowners with refinance transactions for distressed home loans into a better and more affordable terms that would significantly decrease loan deafults and foreclosures.”  FHA provides a thirty year mortgage with a fixed interest rate that benefits the borrower and the government insurance protects the lenders. 

The Congressional Budget Office estimated these home loans would be used by about 400,000 homeowners and would not do much to improve the ailing housie market.“It’s not enough, even in the best of circumstances,” said Mark Zandi, chief economist of Moody’s Economy.com. The number of homeowners who will be assisted “is going to be overwhelmed by the 3 million that are headed toward default.”

Last week, the Senate voted overwhelmingly to advance the mortgage bill, and the House passed a version last month. The Senate, where the bill was delayed by a disagreement over other measures, is expected to come back after the July 4th recess and pass the mortgage aid bill.

Democratic leaders say Congress could send something to the president before lawmakers leave Washington in August.The White House, which initially threatened to veto the measure, has indicated that it is open to supporting the bill if certain provisions are removed. “The Congress needs to come together and pass responsible housing legislation to help more Americans keep their homes,” President Bush said on Thursday.�

A thirty year FHA mortgage is insured by the Federal Housing Administration and has an interest rate that stays the same for the 30-year term. If a person financed a $250,000 home loan with a thirty year FHA mortgage at 6.625% would pay $1,600 a month for the life of the loan.

HUD agreed to insure home mortgages for low and moderate income borrowers, bad credit applicants and first-time buyers.  The first step was FHA waiving a 90-day waiting period for insurance on foreclosed property. “A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” Federal Housing Commissioner Brian Montgomery said in the release.

The temporary one-year policy for foreclosure insurance indicated the US government may be easing its opposition to using taxpayer money to rescue lenders and investors in favor of letting the mortgage industry modify home loans to stimulate a deflated real estate market. The Democratic-controlled Congress has proposed a measure that is similar to the FHA insurance program. House Financial Services Committee Chairman Barney Frankintroduced legislation that would create a $15 billion loan-and-grant program to help states buy and rehabilitate foreclosed homes. The U.S. House of Representatives approved the measure last month. 

According to Realty Trac, banks repossessed twice as many homes in May and foreclosure filings rose 48% from athe previous year.  Declining property values have backed borrowers in to a corner with home loans that they didn’t have the ability to repay when the rates adjusted. 

Jumbo-conforming loans range in size from $417,000 to nearly $730,000 and are especially important in expensive housing markets. FHA continues to help homeowners who recently lost the equity in their home because of declining real estate values in the region.  The FHA home loan limits varies based on the cost of housing in the nearest metro area and can vary from $271,050 in average cost neighborhoods and rise up to $729,750 in  the more costly areas of towns. Homeowners that are considering a home refinance with a jumbo sized mortgage but do not have the 20 percent equity that most conforming lenders requires should  consider the FHA jumbo mortgage, which enables borrowers to refinance up to 97% on a rate and term mortgage.

“Property tax bases are eroding, putting municipal budgets in peril. For example, the city council in Vallejo, California - part of a metropolitan area with a foreclosure rate that ranked sixth highest in the nation in April - last week voted to have the city file for bankruptcy,” Saccacio said.  The White House earlier this week threatened to veto a measure that would spend $300 billion to help distressed homeowners secure a better mortgage loan and be in a better position to prevent a foreclosure. The House passed the measure last week while a similar bill is making its way through the Senate.

The home loan application index is calibrated to March 16, 1990; a reading of 621.6 means that application activity was roughly 6.2 times greater than when the index was first established.  Refinancing activity, usually the driver of overall application volume, fell 8.7% as mortgage rates appeared to have inched higher; the MBA said that average rates on a 30-year fixed rate mortgages rose 8 basis points during last week. Purchase application activity — usually used by economists to predict the direction of the housing market — feel 6.9%.

Surprisingly, FHA loan application activity took a sharp dip as well, falling 6.8%; the drop was one of the few weekly decreases posted for FHA applications so far this year.  The share of variable-rate mortgages as a portion of overall application activity continued to rise as well, hitting its first double-digit total this year at 10.0%, the MBA said.  For more information, visit  http://www.mortgagebankers.org

The pressure has been building in Washington to respond to the huge increases in foreclosure filings. Dodd said he hopes to get the bill approved by the full Senate soon and to President Bush for enactment by early July.  This home loan legislation is the result of weeks of heated negotiations between Dodd and the committee’s top Republican, Ranking Member Richard Shelby, R-Ala.

A key measure in the mortgage aid bill would allow the Federal Housing Administration to insure $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers’ homes. “The passage of this bipartisan legislation marks tremendous progress in my ongoing effort to help stabilize our markets and provide relief to hundreds of thousands of Americans,” said Dodd.

A sticking point had been Shelby’s push to shield taxpayers if borrowers default on their payments after getting government-backed loans. He wanted the FHA plan funded by redirecting money that Dodd’s original bill earmarked for a new affordable housing trust fund. The funds would be paid by Fannie Mae and Freddie Mac.  “My primary concern in negotiations has been to protect the taxpayer,” Shelby said.

The compromise bill will still create a fund to spur affordable housing but would use the funding for that program in the first year to backstop the FHA mortgage program.

How the FHA plan would work

Dodd’s FHA plan is similar in structure to one sponsored by Rep. Barney Frank, D-Mass., and passed by the House on May 8 in a 266-154 vote. One key difference, Dodd’s FHA plan would be in effect through 2011 and Frank’s would go through 2012. Dodd’s plan would also not go into effect until Oct. 1.

To qualify for an FHA-backed loan in either proposed program, lenders would have to be willing to write a new, 30-year fixed rate loan for borrowers for an amount no greater than 90% of the appraised value of the home. The other 10% would be equity for the borrower.

So, in cases where borrowers owe more on their homes than they’re worth, lenders would forfeit any amount owed above appraised value plus 10% equity. They also would have to pay upfront costs to the government to participate.  Borrowers, for their part, must pay an annual premium to the FHA for the insurance backing their new loans. And they must share their equity with the government when they sell or refinance their homes.

They also must meet a number of qualifying criteria. They must be a full-time resident of their principal home. They must have a mortgage debt-to-income ratio of more than 31% under Dodd’s bill and if they have a second mortgage, the second mortgage holder must agree to extinguish that debt before the borrower can enter the FHA program.

The new FHA program could benefit an estimated 500,000 people, according to Dodd. Its cost: up to an estimated $500 million paid for by Fannie and Freddie. If it turns out the costs fall below that level - that is, should few if any borrowers default on their new FHA loans - the funds from Fannie and Freddie would be redirected back to the affordable housing trust fund.

Regulating Fannie and Freddie

The legislation also provides for stricter oversight of Fannie and Freddie. The two government-sponsored enterprises guarantee the purchase and sale of home mortgages in the secondary market.  Shelby had been campaigning for more stringent safeguards than Dodd’s original bill provided. Both Fannie and Freddie have experienced accounting scandals in the past and both saw steep first-quarter losses.

Dodd said he is hopeful he can get the votes he needs to pass the bill through the full Senate in time to go to President Bush before the July 4 congressional recess.  It remains an open question whether Bush would support the bill. He has threatened to veto Frank’s bill.

White House spokesman Dana Perino said Tuesday it is premature to say whether the president would sign the Senate version. “But we’re hopeful that we’ll be able to get to that point.”  Frank said in a statement “it is highly likely we will be able to compromise on a significant housing package.”

According to a recent government lender survey, FHA mortgage rates remained steady with slight drops for FHA home loan rates across the board.  Last week FHA interest rates had worsened, so consumers were relieved tp see the decrease.

Just twelve months ago, 30-year mortgage rates averaged 6.21 %, 15-year mortgages 5.92 percent and the one-year ARM 5.48 percent. The 5/1 ARM averaged 5.92 %. “Recent remarks by Federal Reserve officials, which partly bolstered optimism that financial markets will recover later this year, helped mortgage rates ease up a little this week,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

“Despite the bleak housing market, there was positive news on the overall state of the economy. Retail sales excluding automobiles rose 0.5 percent in April, over twice that of market forecasts, and there was a significant upward revision in March’s figures as well. Also, the consumer price index for April rose less than expected, allaying some market concerns of inflation taking hold,” Nothaft said. Lenders charged an average of 0.6 % in fees and points on 30-year mortgages, up from 0.3 % last week, and 0.5 % on 15-year mortgages, also up from 0.3 %. Charges on the 5/1 ARM averaged 0.6 %, up from 0.5 % last week, while fees and points on the one-year ARM averaged 0.7 percent, compared with 0.6 % a week ago.