The House Financial Services Committee has approved H.R.5830, the Federal Housing Administration (FHA) Housing and Homeowner Retention Act, by a bipartisan vote of 46 to 21.
The legislation, authored by Committee Chairman Barney Frank, will expand the FHA program to help refinance at-risk borrowers into viable mortgages. The bill also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. The legislation now moves to the full House for consideration.
This voluntary program would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages, the committee explains. This $300 billion is the total amount of outstanding loans that may be insured under the program. The government would only have liability if a borrower defaults and the amount recovered in foreclosure is below the outstanding principal.
In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder who chooses to participate would receive a short payment from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government.
‘Servicers should put a pause in some foreclosures until they can wait to see exact details of this as it moves forward,’ warns Frank. ‘If after this we continue to get very little participation by servicers, I can guarantee you that the servicer industry will look very different a year from now than they do today.’
Source: House Committee On Financial Services
