A "Tricky, Tricky Issue"

The Washington Post has the scoop this morning on a set of policies the Bush administration will propose to help homeowners through "this bulge [of interest rate resets] in the next 18 to 24 months".

"The official estimated that the change would allow 80,000 more homeowners to receive federally insured mortgages in 2008 on top of the 160,000 already projected to use the program."

People who have missed mortgage payments are now ineligible for FHA insurance. In the president's plan, they would be eligible if they fall behind only because the amount they are required to pay each month increases, as is now happening with many mortgages issued from 2004 to 2006.

The administration's plan would make FHA loans available to people with worse credit histories, though with higher insurance premiums to cover the increased risk.

The administration would ease a requirement that people refinancing into an FHA insured loan must have 3 percent equity in the house. That way, people who are upside down on their mortgages -- meaning they owe more than the house is worth -- can still refinance into an FHA mortgage.

Bush also seeks to raise the limit on the size of loans that the FHA can insure, which is $362,000 in states with high home prices. The proposal would move the limit to $417,000 in those high-priced states, the same size mortgages that federally chartered entities such as Freddie Mac and Fannie Mae can purchase. But the administration is not seeking to expand the ability of Freddie and Fannie to offer more federally guaranteed loans, despite calls from some in Congress to do so.

Bush will also ask Congress to change the tax laws, temporarily, to make it easier for mortgage lenders to renegotiate loan conditions with borrowers. [The homeowner won't be on the hook with the IRS for forgiven debt on a renegotiated loan].

"Tom Lawler, a founder of Lawler Economic and Housing Consulting in Vienna, said he hopes that the administration's plan will not reward lenders that made bad loans or borrowers that lied about their incomes.

"It's a tricky, tricky issue," Lawler said. "As usual, the devil is in the details."

It seems to this blogger that the foreclosure snowball is rolling down the hill faster than Congress can stop it at this point. They'll have to move fast, which seems against their nature. On the other hand, the fall session is starting soon and they'll need something to do.