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House Passes FHA Modernization, Bush Threatens Veto

by Peter G. Miller
May 8th, 2008

The House has just passed H.R. 5830, the FHA Housing Stabilization and Homeownership Retention Act, by a vote of 266-154.

The legislation, introduced by Rep. Barney Frank (D-MA), would allow the FHA to guarantee up to $300 million in mortgage lending for with toxic mortgages — but only if lenders accept 85 percent of the face value of their financing in settlement of all claims. Borrowers would also pay part of any profit made during the first five years of the loan term and a 3 percent “exit” fee thereafter. So-called “homeownership retention mortgage” financing would be available only to owner-occupants.

While the bill went through the House, support in the Senate is not as certain and the Bush Administration has threatened to veto the measure. As HUD has explained:

“The House plan is financially risky, rewards irresponsible behavior, and mandates a loosening of FHA’s underwriting standards, which would put taxpayers on the hook. The FHA Housing Stabilization and Homeownership Retention Act, H.R. 5830, would permit FHA to provide up to $300 billion in new federal guarantees for risky mortgages. According to the Congressional Budget Office, “the new loan guarantee program would cost $1.7 billion.” Taxpayers – those homeowners not participating or receiving any help – would be forced to pay if the House expands FHA to cover extremely risky mortgages. Currently, borrowers pay premiums for the help they get through FHA insurance, allowing FHA to operate without taxpayer subsidies.”

Also:

“The House plan completely disregards borrowers’ payment histories and credit scores. Borrowers could have missed the majority of their monthly payments over the life of the loan, yet these borrowers would still be eligible for a government-backed mortgage – and taxpayers would be on the hook. A borrower’s debt-to-income ratio would be allowed to go as high as 55 percent, leaving very little income to meet daily living expenses and cover unforeseen emergency costs.”

Earlier in the day, the House had passed H.R. 5818, the Neighborhood Stabilization Act of 2008, by a vote of 239-188.

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