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President's Housing Plan Impacts Credit Unions

The Obama Administration has issued more detailed proposals to help underwater homeowners and address the ongoing difficulties in the housing market.  None of these initiatives is addressed specifically to credit unions, but, as active mortgage lenders and servicers, credit unions will undoubtedly be affected by these programs. The “Plan to Help Responsible Homeowners and Heal the Housing Market”  includes a plan to help responsible homeowners refinance their mortgages, along with other initiatives to address the issues that have plagued the housing market since the onset of the financial crisis. A summary is listed below.

1. Broad-based Refinancing Plan:

The plan, which requires Congressional action, helps “responsible” homeowners (those current on their mortgage) obtain refinancing at today’s low interest rates. It’s expected to cost $5-10 billion and would be funded by assessing a fee on the largest financial institutions (Financial Crisis Responsibility Fee) that varies based on the institution’s size and riskiness of its activities.  These refinanced loans would be guaranteed by FHA, and FHA would run the program.  The plan permits borrowers with standard non-GSE loans to refinance at lower rates through a program that would be run by the FHA. Borrowers would be eligible if they meet all of the following criteria:

  • Borrowers must be current on their mortgage (missing no more than one payment over previous 6 months)
  • Borrowers must have a minimum FICO score of 580
  • The loan must be no larger than the current FHA conforming loan limits in their area (currently set between $271,050 and $729,750)
  • The loan must be for a single family, owner-occupied property

For GSE-backed loans, President Obama is calling on Congress to do the following:

  • Eliminate appraisal costs for all borrowers (using instead the GSEs’ Automated Valuation Model (AVM), mark-to-market accounting or other methods)
  • Require the same streamlined underwriting for new servicers as the GSEs require for current servicers to level the playing field and encourage competition between servicers for borrowers’ business
  • Extend streamlined refinancing for all GSE borrowers to enable low-cost access to today’s interest rates

2. Other provisions of President Obama’s Plan to Heal the Housing Market:

The USDA and FHA are implementing a low-cost streamlined refinancing program so “current” borrowers may refinance to today’s low rates.  The USDA is eliminating the need for a new appraisal, new credit report, and other documentation currently required in a refinancing.  FHA is removing loans from its “Compare Ratio” - the process by which lenders’ performance is reviewed.  This would make it possible for lenders to refinance loans for eligible borrowers without compromising their status as FHA-approved lenders. 

The Administration announced that it plans to work closely with Congress, regulators and stakeholders to create a more robust set of mortgage servicing rules, conforming with the following principles:

  • Simple, easy to understand mortgage forms (the Consumer Financial Protection Bureau is currently working on this)
  • Servicers would be required to disclose all fees and penalties to borrowers in a timely fashion and in understandable language
  • Servicers and investors must implement standards to minimize conflicts of interest in servicing

The rules would also include assistance for at-risk homeowners, such as: (a) early intervention by servicers for homeowners who have demonstrated hardship or delinquency; (b) continuity of contact between the servicer and borrower; (c) providing the borrower with sufficient time and options to avoid foreclosure and permitting foreclosure only after the servicer cannot establish contact after making reasonable efforts or the borrower is not interested in pursuing alternatives to foreclosure.  Finally, the rules would include provisions enabling borrowers to have the right to appeal a foreclosure decision, as well as provisions requiring servicers to certify in writing that appropriate loss mitigation alternatives were pursued before foreclosure.

The Department of Treasury and HUD have been working with the FHFA on a strategy to transition REO properties into rental properties, and FHFA has announced its first major pilot sale today (here).

Unemployed FHA, Fannie Mae, Freddie Mac and HAMP borrowers are now able to take advantage of a full 12 months of forbearance on their mortgages while they are looking for work.  President Obama announced today that several of the major servicers have moved toward a similar 12-month forbearance program, and he hopes that this will become an industry norm.

President Obama announced in his State of the Union speech that the Department of Justice, Department of Housing and Urban Development, the Securities and Exchange Commission and state Attorneys General have formed a Residential Mortgage-Backed Securities Working Group under President Obama’s Financial Fraud Enforcement Task Force.  This group will investigate misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. 

Project Rebuild: Putting People Back to Work Rehabilitating Homes, Businesses and Communities: The President will propose in his budget to invest $15 billion in a national effort to put construction workers on the job rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses.  The budget will also provide $1 billion in mandatory funding in 2013 for the Housing Trust Fund to finance the development, rehabilitation and preservation of affordable housing for extremely low-income families.

The President also plans to extend HAMP eligibility to reach a broader pool of borrowers, including (1) offering an alternative eligibility opportunity for borrowers whose first-lien mortgage debt-to-income ratio is below 31%, enabling lenders to evaluate borrowers’ other debt in determining their eligibility for HAMP refinancing, and (2) including properties that are currently occupied by a tenant or which the borrower intends to rent to qualify for HAMP.

Finally, the Administration will triple lenders’ incentives to participate in HAMP, enabling them to receive between 18 to 63 cents on the dollar for every refinancing under HAMP (rather than the current 6 to 21 cents), and Treasury will pay principal reduction incentives to Fannie Mae and Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.