Housing Revisions Under the TARP Reform Bill
On Friday the U.S. Senate voted 52-48 to approve the release of the $350 billion second tranche of TARP funds to the Treasury Department. The House continues work on the TARP Reform and Accountability Act (H.R. 384) introduced by Representative Barney Frank on January 9th to amend the original TARP provisions, which as presented includes significant changes on foreclosure mitigation and loan modifications.
BusinessWeek cites the argument by some "that TARP has failed because it hasn't cut to the root of the credit crisis: the rise in foreclosures on poorly vetted home loans, which has turned a vast assortment of securitized products into a toxic brew." The bill proposed by Rep. Frank suggests setting aside a portion of the rescue funds—"up to $100 billion but in no case less than $40 billion"—to prevent and reduce residential foreclosures. "President-elect Obama has promised to use as much as $100 billion of the TARP money in this way."
This TARP funds allocation will be used to also strengthen the Hope for Homeownership program, which to date has been a complete flop.
From an earlier Real Concept blog on the Hope program:
Hope for Homeowners, run by HUD, has proven to be a dismal failure. Only 357 people have signed up for loan modification aid since October 1. So what's the problem? Here is where the Washington Blame Game for Hope gets interesting:
The Creators: Congress says that lenders aren't willing to modify loans voluntarily and they should be forced to do so.
The Administrators: HUD says Congress made it too restrictive and too expensive for homeowners.
The Solution: Amnesty for liars.
In order to refinance through Hope for Homeowners, applicants must certify they did not supply false or misleading information on a previous loan application. The HUD program also requires homeowners to supply two years of financial records.
So what did our governing fathers propose to strengthen Hope for Homeowners? They watered it down - significantly. And they provided amnesty for liars. Borrowers no longer have to prove they did not lie on their previous loan application and they don't have to prove their income. In other words, The Liars Club is once again open for business, courtesy of our own government. Isn't this how we got into this mess? It sounds dangerously like a government sponsored Subprime loan.
Here is an excerpt of some of the "Hope for Homeownership Improvements":
BusinessWeek cites the argument by some "that TARP has failed because it hasn't cut to the root of the credit crisis: the rise in foreclosures on poorly vetted home loans, which has turned a vast assortment of securitized products into a toxic brew." The bill proposed by Rep. Frank suggests setting aside a portion of the rescue funds—"up to $100 billion but in no case less than $40 billion"—to prevent and reduce residential foreclosures. "President-elect Obama has promised to use as much as $100 billion of the TARP money in this way."
This TARP funds allocation will be used to also strengthen the Hope for Homeownership program, which to date has been a complete flop.
From an earlier Real Concept blog on the Hope program:
Hope for Homeowners, run by HUD, has proven to be a dismal failure. Only 357 people have signed up for loan modification aid since October 1. So what's the problem? Here is where the Washington Blame Game for Hope gets interesting:
The Creators: Congress says that lenders aren't willing to modify loans voluntarily and they should be forced to do so.
The Administrators: HUD says Congress made it too restrictive and too expensive for homeowners.
The Solution: Amnesty for liars.
In order to refinance through Hope for Homeowners, applicants must certify they did not supply false or misleading information on a previous loan application. The HUD program also requires homeowners to supply two years of financial records.
So what did our governing fathers propose to strengthen Hope for Homeowners? They watered it down - significantly. And they provided amnesty for liars. Borrowers no longer have to prove they did not lie on their previous loan application and they don't have to prove their income. In other words, The Liars Club is once again open for business, courtesy of our own government. Isn't this how we got into this mess? It sounds dangerously like a government sponsored Subprime loan.
Here is an excerpt of some of the "Hope for Homeownership Improvements":
- Raises maximum loan to value (LTV) from 90% to 93% for borrowers above a 31% mortgage debt to income (DTI) ratio or above a 43% ratio
- Eliminates government profit sharing of appreciation over market value of home at time of refi. Retains government declining share (from 100% to 50% after five years) of equity created by the refi, to be paid at time of sale or refi as an exit fee
And my personal favorite:
- Administrative simplification: (a) eliminates borrower certifications regarding not intentionally defaulting on any debt, (b) eliminates special requirement to collect 2 years of tax returns, (c) eliminates originator liability for first payment default, (d) eliminates March 1, 2008 31% DTI test, (e) eliminates prohibition against taking out future second loans, (f) requires Board to make documents, forms, and procedures conform to those under normal FHA loans to the maximum extent possible consistent with statutory requirements.
Here is the proposed language for the Home Buyer Stimulus program (Good news!):
- Requires Treasury to develop a program, outside of the TARP, to stimulate demand for home purchases and clear inventory of properties, including through ensuring the availability of affordable mortgages rates for qualified home buyers. In developing such program, Treasury may take into consideration impact on areas with highest inventories of foreclosed properties. The program will be executed through the purchase of mortgages and MBS using funding under HERA.
- In developing such program, Treasury shall provide mechanisms to ensure availability of such reduced rate loans through financial institutions that act as either originators or as portfolio lenders.
- Treasury shall make the affordable rates available under this program available in connection with Hope for Homeowner refinancing program.
Click Here for H.R. 384 "TARP Reform and Accountability Act of 2009"
Manager's Amendment
Short Summary of Manager's Amendment
Long Summary of Manager's Amendment
Click Here for Summary of Amendments
NOTE:
Still, there is the legal question of performing surgery on the principle for loan modifications. The following is a quote from Congressional testimony that proposes the use of Eminent Domain to buy mortgages for loan modification principle reduction. I find the thought pretty scary, but at this point it was only discussed in testimony before Congress - that's all. Messy, messy, messy can of worms. It bears watching closely:
"In testimony before Congress on Jan. 13, John Taylor, president and chief executive of the National Community Reinvestment Coalition (NCRC), proposed using the doctrine of Eminent Domain as the legal basis for the government to buy 3 million to 5 million home loans at a 30% to 35% discount from homeowners who still have jobs and are good credit risks. That would allow the principal on these mortgages to be reduced so that families can afford to stay in their homes."
Stay tuned.
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