Bush proposal aims to ease FHA loan rules

WASHINGTON — The Bush administration on Wednesday proposed a new effort to help homeowners in danger of foreclosure by making more people eligible for new mortgages insured by the federal government. The program seemed designed, at least in part, to pre-empt legislation sought by congressional Democrats for a much broader expansion of federally insured loans.The commissioner of the Federal Housing Administration, Brian Montgomery, announced the proposal at a hearing of the House Financial Services Committee. He said the expanded version of an existing loan insurance program, called FHA Secure, would help as many as 500,000 homeowners by the end of the year. He estimated it would take at least two months to be put in place.
Some consumer groups were skeptical of the proposal. "In an environment where more than 2 million additional homeowners are facing foreclosure, an expansion of FHA Secure makes a nice press release, but it is immaterial relative to the magnitude of the crisis," John Taylor, president of the National Community Reinvestment Coalition, said in a statement. Committee Chairman Rep. Barney Frank (D-Mass.) has put forward a more expansive plan that he has said could help as many as 1.5 million troubled borrowers.Frank said sarcastically that the timing of the Bush administration's proposal was a "remarkable coincidence." Still, he said the plan's release was a recognition that some government action was needed, and that it should start with lenders taking losses on distressed loans."Anyone who thinks we should do nothing," Frank said, "will have to deal with me and the Bush administration."Both the plan sought by Democrats and the administration's plan seek to stabilize the battered housing market by allowing homeowners, many of whom owe more than their homes are now worth, to refinance expensive, adjustable-rate mortgages with a more stable and affordable 30-year loan backed by the federal government.In his testimony Montgomery said the housing agency would relax its underwriting rules to allow borrowers who have had up to two late mortgage payments in the last year to qualify for a new federally insured loan, at a maximum of 97 percent of the home's current value. He said that applicants with three months of delinquency on their current mortgage would potentially qualify for a loan of up to 90 percent of their home's value.Borrowers with FHA-backed loans also would pay insurance premiums to protect the government and taxpayers in the event of defaults.Montgomery said the administration plans to change its insurance fees, now charged at a flat rate, to allow more flexible pricing and more expensive premiums for borrowers whose credit scores and other financial history identifies them as a greater risk.Montgomery stressed the administration's aversion to any sort of bailout for speculators. "I want to emphasize that we believe that it is critically important to focus on those homeowners who are working hard to fulfill their obligations," he said.Frank, too, has sought to focus government assistance by making his proposal available only to homeowners seeking to remain in their primary residence.