Bush Administration Proposes Letting FHA Insure Loans for Already-Behind Homeowners
- Apr 10, 2008
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.