The National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) have both called for Troubled Asset Relief Program (TARP) funds to be used for expanding loan availability and modifying mortgages.
The NAHB has expressed its support for a plan put forth by Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair to reduce foreclosures, noting that it would help to keep people in their homes and avoid further surges in the inventory of unsold homes.
"The FDIC plan to use TARP funds to bolster foreclosure relief efforts is a creative approach to help strapped borrowers on the verge of losing their homes," says NAHB President and CEO Jerry Howard. "Effective foreclosure relief, along with a stimulus program that includes a meaningful tax credit and aggressive interest-rate buy-down program, are necessary to stabilize the housing market, prop up home values and turn the economy around."
Under the FDIC proposal, lenders would agree to reduce the interest rate, defer some of the amount owed or extend the repayment period so that borrowers could afford to stay in their homes. In return, the government would guarantee that mortgage holders would be compensated for a portion of any losses should the homeowner default on the reconfigured loan.
"NAHB believes that such an approach is essential in order to produce a significant reduction in impending foreclosures and commends the FDIC for its leadership in this area," Howard adds.
In a letter to the Treasury Department, the Federal Reserve Board and the Federal Housing Finance Agency – and copied to President-elect Barack Obama's transition team – NAR notes that in addition to lowering interest rates, the federal government must work with mortgage lenders and credit reporting agencies to eliminate processes that are making it difficult to close on a mortgage loan so that the housing market and the nation's economy can have a robust recovery.
NAR is recommending that the Treasury provide additional TARP funds for the sole purposes of making additional loans and modifying mortgages to help prevent foreclosures.
NAR is asking mortgage lenders and mortgage insurers to make sure they have not over-corrected their underwriting standards and added unnecessarily strict underwriting standards, such as excessively high credit scores to qualify for a mortgage. In addition, credit reporting bureaus should improve compliance with the Fair Credit Reporting Act, including providing prompt responses to consumers who want to correct errors in their file.
‘The housing market is clogged with short sales that take frustratingly too long to clear," says NAR President Charles McMillan. "Though lax underwriting standards should never return, many lenders' credit score requirements have become overly stringent. Good people with good credit scores are finding it difficult to qualify for loans despite the historically low mortgage rates.’
SOURCES: NAHB, NAR