Saturday, September 1, 2007

BUSH ADMINISTRATION TO HELP NEARLY ONE-QUARTER OF A MILLION HOMEOWNERS REFINANCE, KEEP THEIR HOMES

FHA to implement new “FHASecure” refinancing product
President George W. Bush today (08/31/07) announced that HUD's Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing.
(To read the entire press release: Keep Their Homes )

Welcome News
This is welcome news and is the correct measured response to the crisis. I applaud Bush for this initiative. As a Housing Counselor who tries to help people avoid foreclosure I daily see the problem. (To read my article recently published in the Tennessean click here: Tennessee Voices.)

There must be consequences to making poor decisions, both on the part of borrowers and lenders. While I hate to see anyone lose their home, those borrowers who were reckless and who simply let greed lead them to buy more house than they could afford should not be rescued from their mistake. Those mortgage companies that made risky loans that were bound to foreclose should not be rescued from their poor lending decisions. Unfortunately, almost any program that bails out a homeowner also bails out the lender.

Not all homeowners who got bad loans were poor credit risk. Purchasing a home and getting a mortgage can be a complicated transaction. I think HUD Secretary Alphonso Jackson summed it up well when he said, "Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled". This new program allows those homeowners to refinance out of these bad loans into fixed FHA products.

While helping the homeowner, this is not a bail out for the bad lenders. It is true that some loans on which the mortgage company would have lost money due to the customer foreclosing will be paid off. In that sense, it does help the lender who made a bad loan. On the other hand, some who would have kept their high interest rate loan and not foreclosed will be refinanced out of the bad loan, causing the lender to loose the earnings they would otherwise have gained from the loan. Also, the most credit-worthy of the borrowers are the ones who will refinance, leaving the lenders with a portfolio of more riskier loans. On balance, this is a rescue for the deserving borrower and not a bail-out for the undeserving lenders.

There is more that could be done on a local level and state level to slow the rate of foreclouse but this is the correct Federal responce.

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