With foreclosures on the rise in nearly every area of the country, the White House is under pressure from consumer advocates to do something to address the crisis. One of the latest solutions involves letting states issue tax-exempt bonds to help troubled homeowners refinance.
 
The Bush Administration is pushing for Congress to temporarily give state and local governments the authority to issue tax-exempt bonds to homeowners who need help refinancing out of unaffordable loans.

The idea is that state and local governments can sell the bonds and create enough revenue to help subsidize the cost of refinancing. Treasury Secretary Henry Paulson has said that he would like to see the cap on such bonds raised by at least $15 billion over the next three years.

Under current laws, state and local governments have the authority to issue bonds to first time homebuyers and buyers in distressed areas. The change would extend that authority and allow state and local housing agencies to help borrowers refinance with private lenders regardless of “buyer status” or location.

Critics say the plan is dangerous because bond-backed refinances will serve as a prop for artificial house prices and punish future homeowners while rewarding risk-taking borrowers and lenders.

Some say that there is also a chance that the increased use of mortgage bonds could affect other subsidy programs, such as student loan programs and career development programs.  

So far there is no estimate as to how many borrowers could be helped with tax-exempt municipal bonds or what type of borrowers would be eligible, but it is assumed that homeowners who are well into the foreclosure process would not be eligible. Borrowers who have loans that exceed the value of their home are likely to be left out as well.

Examples of ineligibility can already be seen in states like Ohio where enacted refinancing programs have managed to attract only a small percentage of troubled borrowers.

In a recent interview with Reuters, Bob Connell of the Ohio Housing Finance Agency said that most homeowners are simply “too far gone” by the time they contact a housing agency to be helped.

Connell added that he did believe the Bush administration’s proposal would be beneficial nevertheless and hopes that discussion of the proposal prompts homeowners to contact housing agencies for help.

HUD announces incentives for using reliable, government-backed mortgages to find a homeDETROIT – More Michigan families can obtain financial relief from their exotic subprime home loans, thanks to a new government-backed refinancing resource offered by the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA). HUD Secretary Alphonso Jackson highlighted the new FHASecure product and other reliable homebuying incentives at a HUD-sponsored foreclosure prevention workshop for homeowners who want to stay in their homes and prospective borrowers who want to make an educated choice when they buy.

“Homeownership has been an anchor of stability in uncertain times. And it will be once again. The steps we take today to educate and encourage potential homebuyers will help put that anchor back into place,” Jackson told the audience.

The Bush Administration’s new FHASecure plan is helping troubled homeowners who have good credit, but have found themselves in default after their adjustable interest rates reset – typically doubling or tripling from the original rate that was teased to them. An affordable alternative to high-cost, high-risk mortgages, FHASecure will enable many families who have a history of on-time mortgage payments under the original interest rates to refinance into FHA’s mortgage insurance program. Families with high cost mortgages and mortgages that are due to reset, but are still current on their loan, are also eligible to refinance through FHASecure, which is backed by the full faith and credit of the government.

HUD estimates FHA’s current and new products will bring the total number of families it can help refinance to approximately 240,000 next year. In fact, FHA’s mortgage insurance business in Michigan has increased 34 percent in 2007. FHA refinancing in Michigan has also increased 140 percent since 2005, and is expected to increase further next year thanks to FHASecure. FHASecure will save the average subprime homeowner about $400 a month, or $30,000 over the expected life of the loan, Jackson noted.

Even more families could avoid the subprime market’s risky home loans if Congress passes legislation to modernize the FHA, Jackson said. The Administration’s bipartisan FHA modernization proposal, which was first sent to Congress 17 months ago, would lower downpayment requirements, allow FHA to insure bigger loans in high cost areas, and give FHA more pricing flexibility. These reforms would empower FHA to reach an additional 200,000 families that need help – first-time homebuyers, minorities, and those with low-to-moderate incomes – and offer more options to homeowners looking to refinance their existing mortgage.

“We need to give qualified homeowners who find themselves behind on payments a second chance. At this workshop, consumers will learn about FHASecure. For the first time, it allows homeowners who have fallen into default because of a resets the ability to obtain a safe, affordable, government-backed loan. Families still current on their loan can also qualify,” Jackson added.

Beginning today, prospective homebuyers in Michigan and Ohio will also be offered unique incentives to purchase HUD-owned properties using financing insured by the FHA. The Department estimates 2,000 people in Michigan and Ohio will benefit from these options over the next 10 months.

First, individuals will be able to purchase a HUD Home with a $100 downpayment when they utilize an FHA-insured mortgage. Second, homebuyers can obtain a $2,500 sales allowance at closing when they use FHA financing, or a $1,000 sales allowance using other financing types. This incentive can be put towards closing costs, to make home repairs, or to pay down the mortgage. The $1,000 allowance for non-FHA financing must be used to pay closing costs. Finally, real estate brokers can obtain a $500 bonus when borrowers utilize FHA financing and a $250 bonus if borrowers use other financing options. The incentives are available through September 30, 2008.

HUD expects these incentives will be widely used with its Purchase and Repair Program, which allows homebuyers to finance needed repairs and desired updates from the same loan used to purchase the home. By selling homes to families who then repair their home using FHA financing, HUD is helping to stabilize neighborhoods in Michigan and Ohio that have been hard hit by defaults and foreclosures. A state-by-state list of HUD Homes is available at: www.hud.gov/homes/

Jackson also discussed several other ways homeowners can avoid foreclosure, including contacting local HUD-approved housing counselors and calling their lenders for help before their adjustable rate mortgages reset. HUD has reached out to a wide variety of groups that offer foreclosure prevention, counseling, and refinancing for American homeowners. The goal of this initiative is to expand mortgage financing options, identify homeowners before they face hardships, help them understand their financing options, and allow them to find a mortgage product that works for them.

“It is vital that we prevent foreclosure. Foreclosure doesn’t just hurt families, it devastates neighborhoods. We must help these communities recover,” concluded Jackson.

Following Jackson’s remarks, attendees were able to attend several seminars aimed at addressing their current financial situation, including one-on-one assistance. Homeowners currently delinquent on their mortgages could participate in a seminar on options for keeping their homes. A second seminar focused on refinancing options for those not yet delinquent, but concerned about increased mortgage payments when their loans reset. The third seminar is targeted to prospective homebuyers — those thinking about homeownership for the first time.

More than 75 HUD-sponsored workshops and seminars for first-time homeowners, current homeowners and industry representatives have been held in over 50 cities throughout 25 states since late July and will continue through the remainder of the year. Interested parties should call 1-800-CALL-FHA to learn more and sign up for these events.

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HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.