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03 Dec 08 Paulson Announces Mortgage Loan Programs with More Credit

HENRY PAULSON, TREASURY SECRETARY: Today the Treasury and the Federal Reserve are announcing a facility to finance issuance of non-mortgage asset-backed paper in order to support lending to consumers and small businesses which is vital to our economy. The consumer asset-backed securities market is a source of liquidity to financial institutions that provide federally guaranteed small business loans and consumer lending such as home mortgages, auto loans, student loans and credit cards.

Issuance of ABS in these areas reached $240 billion in 2007, but credit market stresses led to a steep decline in the third quarter of 2008, and the market essentially came to a halt in October. As a result, millions of Americans cannot find affordable financing for their basic credit needs. Credit card rates are rising, making it more expensive for families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending and as a result weakens our economy.  Mortgage rates remain low, but the need for more obtainable credit has become more evident.  FHA loan programs continue to offer new opportunities for existing homeowners to refinance and new home-buyers to finance homes.

To address this need and support the return of consumer lending, the Treasury will provided 20 billion of credit protection to the Federal Reserve in connection with its $200 billion term asset-backed securities loan facility. By providing liquidity to issuers of consumer asset-backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small business loans. The facility may be expanded overtime and eligible asset classes may be expanded later to include other assets such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.

Throughout this financial market turmoil, our focus has been to stabilize the system and to support the lending that is vital to our economy. Toward that end, we’ve taken steps to strengthen the capital position of our financial institutions, to stabilize the system and to enable them to increase lending to American consumers and businesses. Similarly we’ve acted to stabilize the GSEs and to purchase GSE mortgage-backed securities in order to increase the availability of affordable mortgage loans throughout our nation. Today’s initiative to support small business and consumer finance market is similarly aimed at increasing the availability of affordable lending.

Today’s announcement by the Fed that it will purchase direct mortgage loan obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and also mortgage-backed securities guaranteed by Fannie, Freddie and Ginnie Mae underscores our support for the housing market. Nothing is more important to getting through this real estate and housing markets corrected than the availability of affordable mortgage loans. It will take time to work through the difficulties in our market and our economy and new challenges will continue to arise.

I and my regulatory colleagues are committed to using all the tools at our disposal to preserve the strength of our financial institutions and stabilize our financial markets to minimize the spill-over into the rest of the economy. Now I’d be happy to take your questions.  Get the Latest mortgage news.  

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27 Nov 08 Hope for Homeowners with FHA Refinancing

FHA announced more revisions for their highly touted refinance product, Hope for Homeowners. This FHA loan program encourages distressed homeowners to keep their house, while also providing incentives to FHA mortgage lenders for renegotiating their mortgage balance with a principal reduction down to “fair market value.”

QUESTION: What is the new Hope for Homeowners program?

ANSWER:  A new FHA refinance program with an additional $300 billion in FHA mortgage insurance authority. Under the program, borrowers unable to afford their present mortgage loans and who meet other criteria, can refinance into an FHA mortgage loan. Existing mortgage lenders who volunteer to participate agree to provide loan modifications and accept short refinancing by writing down principal to 90% of the appraised value of the property. These FHA mortgage refinance loans will be eligible for securitization with Ginnie Mae. The program is voluntary on the part of lien holders.

QUESTION: What are the outlines of the new “H for H” program?

ANSWER:  These are some of the basics according to HERA:

Reps and Warrants: Insurance benefits will not be paid if a mortgage violates the representations and warranties the program’s governing body (Board) will require or if a borrower of the new loan fails to make the first payment on the FHA mortgage.

o    Eligibility: Mortgages eligible for refinance must have been originated on or before January 1, 2008.

o    Borrowers must have housing debt-to-income ratios greater than 31 % (or a higher ratio set by the Board) as of March 1, 2008.

o    Borrowers must certify they did not intentionally default on the original mortgage or other debts or furnish false information (five year jail time for false statements) to obtain the FHA loan.

o    Borrowers are not eligible if convicted of fraud within the last 10 years.

o    Borrowers’ income must be fully documented through their two most recent tax returns and other standards established by the program’s governing Board or HUD.

o    Eligible borrowers may only have one primary residence.

o    New Loan Requirements: 30-year fixed rate loan not exceeding 90 % of the property’s appraised value.

o    Principal amount cannot exceed 132 % of the 2007 Freddie Mac loan limits (i.e., $550,440).

o    FHA plans to establish fair compensation regarding origination fees.

o    Prohibits second mortgages for five years.

Data sources: Mortgage Bankers Association, FHA Mortgage Lending Blog and FHA Home Loan Refinancing

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