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It's been a challenge to keep current on the US government's efforts to help homeowners facing foreclosure.
Between official testimony and speeches, between politicians' promises and legislative compromises, some of the details, I'm embarrassed to say, slipped through the cracks.
For example, I missed the April announcement of an expansion to FHASecure, the Federal Housing Administration's programme to help creditworthy borrowers refinance adjustable-rate mortgages when the teaser rates reset.
Under the expanded programme, borrowers with adjustable-rate mortgages who missed up to three interest payments in the last year - and who receive a voluntary mortgage principal writedown from their lender - would qualify for an FHA-insured mortgage. The new terms go into effect July 14.
"The resets were always overblown as an issue," says Andy Laperriere, a managing director with the ISI Group in Washington. "The overwhelming majority of delinquencies by subprime borrowers were on loans that did not reset."
In other words, these borrowers couldn't afford the homes they "bought", often with no money down, in the first place, even under the most favourable, low-teaser-rate circumstances.
Now the government wants to help them out by expanding FHASecure, which may turn out to be a misnomer.
"The risk under normal circumstances would be highly objectionable," says Michael Carliner, an independent economist in Potomac, Maryland, who used to be with the National Association of Homebuilders. "The government is going to take a hit one way or the other."
The government? That would be we, the people; we, the taxpayers.
The FHA is the only government agency that is self-funded; the insurance premiums paid by borrowers have been sufficient to cover losses - at least to date.
Because borrowers put little or no money down, they are required to buy insurance, which reduces the risk to FHA-approved lenders if the homeowner defaults.
Full faith
FHA loans are bundled into mortgage-backed securities by the Government National Mortgage Association. Ginnie Mae mortgages, unlike those securitised by Fannie Mae and Freddie Mac, carry the full faith and credit of the US government.
So, while fears about the capital adequacy of Fannie Mae and Freddie Mac are dominating the marketplace, the expansion of FHA, either through administration diktat (FHASecure) or congressional legislation, poses a direct risk to us, the taxpayers.
Why should responsible homeowners have to foot the bill for the irresponsible behaviour of others in a capitalist system? (No, the folks buying homes they couldn't afford weren't all hoodwinked by mortgage lenders.)
The answer: A higher power has decided that the anticipated future cost - the risky behaviour it encourages tomorrow by rewarding it today - is less than the more easily measured current cost.
The housing market is a mess. Sales and prices are still falling, competition from distressed sales (of foreclosed properties or short sales by the bank) is mounting, lenders are tightening credit standards and employment is falling.
Policy makers have decided that short-term pain is intolerable, especially in an election year, with constituents badgering their representatives to "do something" about high gas prices and a lousy economy.
On a more upbeat note, the FHA's business almost evaporated in recent years as the explosion in subprime loans, whose standards were about as low as they could go, supplanted its role of lending to less creditworthy borrowers.
One could argue that the flow will normalise itself. The subprime loans that the FHA giveth, it taketh away.
Raising the ante
That said, the expansion in FHASecure, even with its new policy of basing premiums on the borrower's risk profile, raises the ante.
"It's not in keeping with the idea that the FHA programme is supposed to be self-supporting," Carliner says. "These are risky loans."
"We want to be able to help families who are in the right house, but the wrong mortgage," Brian Montgomery, US Housing and Urban Development assistant secretary, told the House Financial Services Committee in April.
What if it's the right mortgage for the right house at the wrong time? Under the new programme, the FHA will require a 97 per cent loan-to-value ratio for borrowers who were late on two consecutive monthly payments or any two payments in the last 12 months. For those folks hitting the trifecta (three missed monthly payments), the FHA requires a 90 per cent LTV ratio.
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