Bush Administration Proposes Letting FHA Insure Loans for Already-Behind Homeowners

Washington, D.C.–The Bush administration said Wednesday it would enable the Federal Housing Administration to allow some borrowers who have defaulted to refinance into FHA-insured loans.The administration’s plan was suggested as the House Democrats discussed another proposal at a House Financial Services Committee hearing, CNNMoney.com reports.The Bush plan–designed for borrowers who

Washington, D.C.–The Bush administration said Wednesday it would enable the Federal Housing Administration to allow some borrowers who have defaulted to refinance into FHA-insured loans.The administration’s plan was suggested as the House Democrats discussed another proposal at a House Financial Services Committee hearing, CNNMoney.com reports.The Bush plan–designed for borrowers who are “financially capable but have a spotty credit record,” according to Brian Montgomery, assistant secretary for housing–would allow borrowers to receive FHA protection in case of default, but they would have to pay a premium. Lenders would be required to write down loans to between 90 and 97 percent of a home’s worth for delinquent borrowers who owe more than their home’s value. The plan should take 60 to 70 days to execute, according to Montgomery.House Financial Services Chairman Barney Frank, D-Mass., compared the plans but called it a “remarkable coincidence” that the Bush administration announced its proposal just before the hearing for his plan. The FHA receives the power to insure $300 billion in owner-occupied home loans in Frank’s bill–if the lenders agree to reduce the loans to 85 percent of the appraised home price.The lender would provide the government with a one-time payment equivalent to 5 percent of the new, lesser loan; the borrower would give a 1.5 percent annual premium. The government would also get at least 3 percent of the original loan amount when the home is sold.