FHA Home Loans Refinancing

House Passes Housing Plan with FHA Loans


In a 266-154 vote – with 39 Republicans voting in favor lawmakers approved a proposal, sponsored by House Financial Services, to let the FHA insure up to $300 billion in new loans over four years if FHA mortgage lenders agree to reduce the mortgage principal. To qualify, the home loan lender would have to cut the debt to no more than 85% of a home’s current appraised value. If the FHA-refinanced loans went into default, the FHA would pay the lender the remaining principal owed. While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers.

The CBO estimates the FHA loan expansion program would cost taxpayers $1.7 billion. “This bill is very time limited and limited in specifics to a subset of mortgages and meant to mitigate a market failure,” Frank said during the floor debate on Thursday.

Opponents of the FHA expansion contend it’s a bailout for lenders, investors and “speculators” who took on imprudent risk. And because participation in the program would be voluntary on the part of lenders, critics contend lenders would only unload their riskiest loans into the federally backed program. Supporters note that the program is limited to loans for owner-occupied residents, not speculators. They also make the case that lenders and investors would be taking a loss on every loan, and that the borrower would be paying higher-than-usual premiums to the FHA to insure the loan and would share equity in their home with the government.

“No borrower who goes through this process will say at the end of it, ‘Boy, that was fun. Where do I buy a ticket to get back on Space Mountain?” Frank said. Supporters also say if the borrower still can’t afford the loan when it’s written down to 85% of appraised value, their mortgage loan won’t qualify for the program. If the bill is a bailout for anyone, they say, it’s a bailout for communities across the country, which suffer when home values and property taxes go down because of foreclosures. Earlier on Thursday, the House passed a bill that would send states $15 billion to buy and fix up foreclosed properties – a measure the White House also opposes.



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