Reuters logo
FHA rallies brokers on mortgage principal plan
December 16, 2010 / 10:52 PM / 7 years ago

FHA rallies brokers on mortgage principal plan

NEW YORK (Reuters) - U.S. borrowers stymied by lenders that refuse to cut their mortgage principal to market levels should just keep trying, as lenders may have a change of heart, an Obama administration official said on Thursday.

A Federal Housing Administration staffer, hosting one of four conference calls to brief brokers on its “short refinance” program this week, confronted a few critics among routine questions about a plan that addresses the massive problem of homeowner equity lost during the housing slump. The FHA is part of the U.S. Department of Housing and Urban Development.

The program has been pitched by FHA Commissioner David Stevens as “the single most effective way” to cut principal for homeowners who owe more than their home is worth. With some 11 million loans underwater, the problem is one that academics see as the main hurdle to U.S. economic health, as borrowers feel poorer and have trouble refinancing or moving.

The program is controversial for lenders since they must write down at least 10 percent of the mortgage principal and refinance the borrower into an FHA-backed loan.

Loans backed by the FHA, which does not make loans directly but guarantees them for borrowers who meet certain criteria, account for close to 20 percent of new mortgage originations

Since its September launch, the FHA program has endorsed 15 loans out of 128 applications, said Julie Shaffer, the FHA official who hosted the call.

“The lender might tell them ‘No’ today, but the borrower should keep trying. The lender might decide to participate a month from now,” she said in response to a question about lenders denying borrowers.

Otherwise, there is nothing to be done, as the program is voluntary, Shaffer said.

The Obama administration is keen to see the program take off. Treasury Secretary Timothy Geithner on Thursday said mortgage giants Fannie Mae and Freddie Mac had a “pretty good economic case” to participate, and that the government was reviewing the companies’ concerns with their regulator.

The FHA’s Stevens said in October that Fannie Mae and Freddie Mac may have “taken on a slightly different tone” toward participation, after an initial cold response.

Write-downs would hurt. Fannie Mae and Freddie Mac have been reluctant to participate, as it would increase the financial bleeding that has so far caused them to seek more than $150 billion in federal aid.

The FHA commissioner in October also pressured mortgage bankers to do more to support federal housing problems as payback for indirect U.S. aid -- such as keeping interest rates low and bailing out Fannie Mae and Freddie Mac -- that has helped fatten profits.

“We are seeing interest in it from a lot of lenders,” the FHA call host said.

Additional reporting by Corbett B. Daly in Washington

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below