Thurs Feb 26 2009 News Snippets

Dem spat delays mortgage relief bill in House

A dispute among House Democrats stalled legislation Thursday to let bankruptcy

judges reduce the principal and interest rate on mortgages for debt-strapped homeowners.

The measure, backed by President Barack Obama, is the most controversial part of a broader housing package that had been expected to pass the House this week.

It hit a snag after a group of moderates expressed concerns in a closed-door meeting of House Democrats about how the bill would affect homeowners who are still struggling to make their mortgage payments.

The banking industry has lobbied hard against the measure, mounting a successful multimillion-dollar effort last year to kill it.

This year, mortgage industry players who are scrambling to narrow the scope of the measure to reduce its potential cost for banks have won some key concessions. House Democrats agreed to limit the measure to existing loans made before the bill is enacted and to borrowers who can show they tried other ways of modifying their home loans before resorting to bankruptcy, among other changes.

But banks want to go much further, restricting the bill only to subprime or other exotic loans.

Centrist House Democrats who have been working closely with the financial services industry to scale back the bill balked at supporting it on Thursday after a news report suggested that Sen. Dick Durbin, D-Ill., the lead sponsor of the bankruptcy measure in the Senate, was willing to limit it only to subprime mortgages. The Senate is expected to take up the legislation within two weeks.

In the House, Rep. Ellen Tauscher, D-Calif., the head of the business-minded New Democrat Coalition, raised concerns during the private session that the measure omitted help for homeowners who aren't staring at bankruptcy but are buckling under burdensome mortgage payments.

House leaders said they had postponed a vote until Tuesday to give Democrats time to meet with Obama's housing secretary, Shaun Donovan, about how the measure fits with his housing plan.

"There's an equity question here," said Rep. Ed Perlmutter, D-Colo., another member of the coalition. "The discussion has got to be, what's the benefit to the guy next door who is struggling to pay the bills, is paying the bills and isn't filing for bankruptcy?"

Democratic skeptics are worried "that this could be too hard on the banks," said Rep. John Conyers, D-Mich., the Judiciary Committee chairman who sponsored the bill.

Consumer advocates and most Democrats regard the measure as crucial to slowing the rapid rate of foreclosures. They say it's the only way to force mortgage holders — known as loan servicers — to take steps to help homeowners stay in their homes.

The mortgage industry contends, however, that the measure will impose steep and unpredictable costs on its companies, which will be forced to raise fees and interest rates for borrowers. Opponents, including most Republicans, call it the "cram-down."

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House price fall is biggest in 21 years

Home prices in big US cities dropped at a record rate last year as slumping sales and rising foreclosures hammered the housing market.

The fall of 18.5 per cent in the year to December in the Case-Shiller index was the biggest fall since the measure, published by Standard and Poor’s, started 21 years ago. House prices have now fallen to levels last seen during the third quarter of 2003

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FHA Eyes Regulatory Changes To Aid Homeowners

The Obama administration is working on regulatory changes to allow the Federal Housing Administration to assist homeowners faced with "more than just temporary" losses in income, a senior U.S. housing official testified Tuesday to a U.S. House panel.

The Department of Housing and Urban Development is also requesting authority to allow the FHA to buy down balances of troubled mortgage loans, HUD Director for Single Family Asset Management Vance T. Morris told the panel.

Lawler said the administration plan to allow homeowners who owe more than 80% of the value of their homes to refinance more easily wouldn't increase the risk to Fannie and Freddie.

The program, open only to borrowers with mortgages backed by the mortgage giants, would allow people with high loan-to-value mortgages to refinance without purchasing additional mortgage insurance. The companies' government charters prevent them from buying mortgages with loan-to-value ratios above 80% unless the borrower obtains credit enhancement.

As part of its housing plan, the Obama administration has proposed changes to FHA and Veterans Administration authority to ensure that partial claims are paid to investors in mortgages backed by the agencies in the event of a "cram down," or a reduction in the principal amount or a change in the interest rate, by a bankruptcy judge or a voluntary modification by the servicer. The changes are intended to prevent investors from shunning mortgages insured by the agencies and to spur more loan modifications.