What’s in the Latest White House Proposals on Housing?

Associated Press
President Barack Obama is set to give a speech on housing Wednesday.

President Barack Obama is set to give a speech Wednesday outlining his call for more help for the nation’s housing markets, according to administration officials. Here’s a preview of what’s on the White House wish list:

Extend refinancing options to more borrowers: Last October, the Obama administration and the federal regulator for Fannie Mae and Freddie Mac revamped a program, called the Home Affordable Refinance Program, that allows borrowers with loans backed by the mortgage-finance companies to refinance if they meet certain qualifications. The changes allow borrowers to refinance even if they owe far more than their homes are worth.

The latest push would require congressional action to make the HARP changes broadly available to everyone else who doesn’t have Fannie and Freddie-backed loans. Under the plan, homeowners would be able to refinance into new loans backed by the Federal Housing Administration.

Borrowers with privately held mortgages who have made their last six payments and have no more than one delinquency in the prior six months can participate. The program is open only to owner-occupants whose loans are within their county FHA loan limit. Borrowers who can verify current employment don’t need to otherwise go through the regular underwriting process. Banks have to agree to cut loan balances for borrowers who owe more than 140% of the value of their homes.

Improve refinancing for FHA borrowers: The new program doesn’t apply to loans that are already backed by the FHA, but the administration says the agency will take steps to ease restrictions that have inhibited refinancing of FHA loans.

Broaden HARP: Fannie and Freddie and their regulator didn’t make a handful of technical changes to HARP that had been sought by the Obama administration, which will instead ask for Congress to make those changes. Among other steps, it will seek to extent HARP to borrowers who have more than 20% equity in their homes. Currently, HARP is only open to borrowers with less than 20% equity.

New uniform standards for mortgage servicers: The administration is set to unveil a borrower “bill of rights” that would become an industry standard code of conduct for mortgage servicers.

Among other steps, the proposal will clarify steps to modify the so-called “dual track” process by which banks process foreclosures at the same time that they evaluate borrowers for a loan modification. Under the code, banks will have to certify in writing that they’ve taken all appropriate loss-mitigation steps before referring loans to foreclosure.

Converting some foreclosures to rentals: Given the huge overhang of distressed homes in some markets, officials are preparing a pilot program to turn foreclosures into rentals through bulk sales of the properties to private investors. The first pilot program, which would be conducted by Fannie Mae, is limited only to properties that Fannie has already rented out through a program that allows tenants to rent out homes when their landlords go into foreclosure, according to people familiar with the matter.

The first pilot covers real estate with an estimated value of at least $250 million that would be pooled into portfolios in six areas: Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and parts of Florida.

FHFA Invites Investors to Pre-Qualify for Bulk REO Sales

The Federal Housing Finance Agency (FHFA) announced
today the first step in a new initiative to convent foreclosed properties (REO)
in the hardest-hit metropolitan areas to rentals. The Real Estate Owned Initiative
is a joint endeavor of the Departments of Treasury, and Housing and Urban
Development (FHMA’s parent), the Federal Deposit Insurance Corporation, and the
government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

The first phase of the program will encourage
investors interested in participating to “pre-qualify” to bid on property in
the pilot phase of the program and any subsequent phases with the understanding
these properties would be held as rentals for a specified period of time. The
expectation is that the rental period will provide relief for local housing
markets suffering under the large inventories of foreclosed and often vacant
and/or deteriorating housing as well as providing additional options to some
tight rental markets. 

During the
pilot phase, Fannie Mae will offer pools of various types of assets including
rental properties, vacant properties and non-performing loans for sale.  The first transaction will be announced in
the near-term.

There has
been a lot of discussion in recent weeks about the value of linking REO
inventory reduction to rentals as one way of speeding recovery of the
market.  Much of the talk was driven by a
prepared for Congress by the Federal Reserve which focused on the
issue and the probable cost.   It said in
part; “An REO to rental program
that relies on sales to third-party investors will be more viable if the
cost-pricing differential (i.e. the discount offered to investors) can be
narrowed which might be done by (a) structuring sales as competitive auctions;
(b) making sales packages more attractive to a variety of investors.  A third option suggested by the Fed, providing
investors with the debt financing, does not appear to be part of the current

FHFA said it had received more than 4,000 responses
for a Request for Information posted last summer which sought input on options
for selling single-family REO held by the GSEs and FHA.  The pre-qualification step announced today will
require potential investors to meet minimum criteria including, but not limited
to the financial ability to acquire the assets, sufficient experience and
knowledge to analyze and bear the risks of the opportunity, and agreement to
keep certain information about the REO and related matters confidential.  FHHFA said the agency wants to ensure that
investors have the financial capacity and operational knowhow to manage
properties in such as way as to stabilize communities hard-hit by the housing

“This is
an important step toward increasing private investment in foreclosed properties
to maximize value and stabilize communities,” said FHFA Acting Director Edward
J. DeMarco
. “I am grateful for the collaborative effort by the many
stakeholders including investors, nonprofit organizations, and state and local
government officials, who have worked together on this Initiative.”

FHFA said
it continues to look for ways to improve its sales to owner occupants and small
investors who constitute the majority of the market for Fannie Mae and Freddie
Mac and who buy at close to market value. 
The pilot phase is to determine the type of assets, size and location of
pools, and the service and support necessary to appeal to investors who will
best work to stabilize communities while maximizing the return to the sellers
and improving home values in impacted markets.

Interested investors can obtain information about pre-qualification
at http://www.homepath.com/structuredsales.html.

Read the full FHFA announcement here.

…(read more)

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