On March 13, 2008, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, announced his intention to introduce legislation that will create a program within the Federal Housing Administration to provide aid to distressed borrowed trapped in mortgages they cannot afford.Recently, President George Bush has signed it into law.
According to the Hope for Homeowners Act 2008, new mortgages that are offered by the FHA approved lenders will refinance abusive loans at a significant reduction for homeowners who are in difficult situations meeting their mortgage payments. Dodd said, “This is the worst housing crisis of our lifetime, and we’re in a recession as a result of it.” He adds, “The question is, and how deep is this going to go? How long-lasting will it be? We need to move aggressively – cautiously, prudently, and thoughtfully – but aggressively, in order to regain our financial footing and ensure a crisis of this magnitude does not occur again.”
“Property values decline sharply when a home in the neighborhood is foreclosed upon. In order to stabilize neighborhoods, we must take actions to prevent foreclosures. This proposal will help provide much-needed relief for people on the brink of foreclosure, keeping families in their houses and neighborhoods financially stable.”
Overall, the program is built on five principles. They are long term affordability, no investor or lender bailout, no windfall for borrowers, voluntary participations, and restore confidence, liquidity, and transparency. The program is built on the idea that creates a new equity for troubled homeowners to be a more effective way to avoid foreclosure. Investors will have to take significant losses in order to benefit the processed of the loans. Borrowers will share their new equity and future appreciation equally with FHA. This program will create certainty and get markets flowing again.
The new programs will over overseen by a Board that is made up of the Secretary of HUD, Secretary of Treasury, and the Chairman of the FDIC. The size of the new FHA insured loan will be determined by the lesser of the amount the borrower can afford to repay, and the amount of the existing loan minus a discount established through an auction process established by the Board.
