Lots of chatter about President's mortgage plan
I thought -- heck, just about everyone thought -- that Fed Chairman Ben Bernanke's speech at 10 a.m. EST was going to be the big news of the day in mortgage-land. But overnight, some details of a plan by President Bush to help bail out subprime borrowers were leaked to the press. According to various reports (from the New York Times, USA Today, Washington Post, and more) ...
* The plan will change the way the Federal Housing Administration (FHA) loan program works. It "would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next," per the Times. Specifically, according to the Post, FHA guidelines will be modified so that borrowers with ARMs who have fallen behind on their payments due to a rise in rates can refinance into FHA loans. Currently, guidelines prohibit borrowers who are already delinquent on their current mortgages from refinancing into FHA loans.
* Lenders will be pressured to avoid foreclosing on some borrowers.
* FHA credit guidelines will reportedly be eased, though those loans will require higher FHA insurance premiums. The 3% equity requirement FHA currently has may be eased as well, though it's not clear exactly how from the reporting out there.
* FHA loan limits will likely be raised, which would allow larger-denomination mortgages to be made. The Post says it will go from $362,000 in expensive-housing states to $417,000, the current cap on conforming, Fannie Mae and Freddie Mac loans.
* Legislation will be encouraged to deal with the "debt forgiveness" tax burden. Currently, if your mortgage lender waives a portion of the money you owe, the IRS generally considers that "income" and taxes it. For instance, if you buy a $200,000 house with a $200,000 mortgage, and its value falls, you might negotiate a short sale with the lender. You'd sell it for $180,000 and the lender would forgive the $20,000 difference ... but the IRS might tax that $20,000 as if it were income.
Full details won't come until later this morning. I'll try to update the blog later today.
* The plan will change the way the Federal Housing Administration (FHA) loan program works. It "would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next," per the Times. Specifically, according to the Post, FHA guidelines will be modified so that borrowers with ARMs who have fallen behind on their payments due to a rise in rates can refinance into FHA loans. Currently, guidelines prohibit borrowers who are already delinquent on their current mortgages from refinancing into FHA loans.
* Lenders will be pressured to avoid foreclosing on some borrowers.
* FHA credit guidelines will reportedly be eased, though those loans will require higher FHA insurance premiums. The 3% equity requirement FHA currently has may be eased as well, though it's not clear exactly how from the reporting out there.
* FHA loan limits will likely be raised, which would allow larger-denomination mortgages to be made. The Post says it will go from $362,000 in expensive-housing states to $417,000, the current cap on conforming, Fannie Mae and Freddie Mac loans.
* Legislation will be encouraged to deal with the "debt forgiveness" tax burden. Currently, if your mortgage lender waives a portion of the money you owe, the IRS generally considers that "income" and taxes it. For instance, if you buy a $200,000 house with a $200,000 mortgage, and its value falls, you might negotiate a short sale with the lender. You'd sell it for $180,000 and the lender would forgive the $20,000 difference ... but the IRS might tax that $20,000 as if it were income.
Full details won't come until later this morning. I'll try to update the blog later today.
posted by Mike Larson at
8:08 AM
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