Frank FHA Bill Passes First Test

by Peter G. Miller
May 2nd, 2008

H.R. 5830, the FHA Housing and Homeowner Retention Act, has now passed the House Financial Services Committee.

Introduced by Committee Chair Barney Frank (D-MA) and now with more than 40 co-sponsors, the legislation if enacted would authorize up to $300 billion in FHA loan guarantees for troubled homeowners — and thus troubled lenders.

As explained in depth in my RealtyTrac.com column, the Frank bill would finance up to 85 percent of current loan values — meaning that lenders would take a loss. Borrowers, however, would also have to pay HUD an “exit” fee equal to 3 percent of the loan value and much more if they sell in the first five years of the new loan term (a device to limit speculation). The program would only be open to distressed homeowners, investors would not be helped.

Passage in the committee was a virtual lock — Rep Frank is the committee chair and what he has proposed makes more and more sense as foreclosure levels mount. The potential cost of the measure, according to Michigan Rep. Sander Levin (D-MI) would be from $3 billion to $6 billion, chump change compared to the open-wallet policy adopted for investors on Wall Street.

The view here is a little different. A close look at the bill suggests there would be little if any cost to the federal government. The reason? Add up the fees, write-downs, insurance premiums and inventory reductions in local markets and the odds are good that HUD could actually make a profit from the Frank bill.

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