WASHINGTON Two leading Democrats on the Senate Banking Committee on Tuesday pressed the U.S. government's mortgage insurer to revise one of its housing aid programs to ensure it reaches a larger pool of distressed borrowers.
A new requirement to verify employment for those participating in the Federal Housing Administration's loan modification program shuts out eligible borrowers who would otherwise benefit from the government's assistance, Senate Banking Chairman Tim Johnson and fellow Democrat Elizabeth Warren said in a letter to the FHA's chief.
"There is no good justification for restricting access to the loan modification program based on the source of one's income," the senators wrote to FHA's Commissioner Carol Galante.
The new requirement, which went into effect on March 15, limits some seniors, veterans, and single parents with other sources of income outside of monthly paychecks, the lawmakers stated.
Many homeowners draw funds from other sources, including personal retirement accounts, alimony or child support, and federal benefit programs, such as Social Security Disability Insurance. The senators want the clause "currently employed" that was inserted into the FHA's guidelines for the government's loan modification program to be removed to allow those who rely on various income sources to be eligible for aid.
The Federal Housing Administration made the changes earlier this year as part of its improved loss mitigation efforts, including a revised set of alternatives to foreclosure in order to reduce the number of claims against the agency's insurance fund. The FHA, which insures about a third of U.S. mortgages, faces a projected shortfall of $16.3 billion due in part to defaults on mortgages it guaranteed from 2007 to 2009 as the housing bubble deflated.
It could be forced to turn to the Treasury Department for a bailout at the end of September.
"The ‘currently employed' provision is bad for homeowners and also bad for FHA, which can benefit from a more effective loss mitigation program," the senators wrote.
The FHA does not actually lend money to home buyers but instead insures the home loans made by private lenders. In exchange for this protection, the FHA charges certain fees and the cost of which is passed on to borrowers. The government mortgage insurer plays a key role in helping those with low and modest incomes obtain access to credit to purchase a home.
(Reporting by Margaret Chadbourn; editing by Jackie Frank)