March 4, 2011 (Chris Moore)
The House Financial Services Committee voted Thursday to end two new Department of Housing and Urban Development (HUD) programs that would provide assistance to troubled homeowners citing the need to stop funding government programs that spend more to save a single borrower than it costs to buy a home.
The first bill is the FHA’s “short refinance” option, which was announced about a year ago and has been available since last September. It requires investors in mortgage-backed securities to reduce the borrower’s primary mortgage by at least 10% to help homeowners whose property values have fallen dramatically.
The program, however, has gotten off to a slow start. Only 44 loans have been refinanced as of mid-February, and only 245 applications have been submitted. Just Wednesday, FHA Commissioner David Stevens said 23 lenders have signed up to participate in the Short-Refi program.
Originally estimated at possibly being able to help between 500,000 to 1.5 million homeowners, the program has been hampered by a lack of participation from mortgage giants Fannie Mae and Freddie Mac. The two companies have been reluctant to write down mortgage balances for troubled borrowers and the handful of banks that have signed up for the program only want to refinance loans they hold.
The other bill would end the Emergency Homeowner Loan Program. Through it, HUD provides mortgage assistance to unemployed borrowers in the form of 0% interest loans for up to $50,000. The $1 billion program was included in the Dodd-Frank financial overhaul passed last year and had yet to be launched. Applications for the program were to be accepted starting this spring.
Rep. Judy Biggert (R-Ill.), who co-sponsored both bills passed by the committee Thursday, said, “A government program that spends more to save a single borrower than it costs to buy a home is no help at all – it’s just a waste of taxpayer money. We need to stop funding programs that don’t work with money we don’t have.”
Rep. Maxine Waters (D-Calif.), who helped HUD develop both the NSP and the EHLP program, stated, “I am very disappointed in my colleagues on the opposite side of the aisle, who in their mania to achieve fiscal austerity at all costs, moved to cut two nascent programs designed to really help struggling homeowners.”
The committee also heard testimony on whether or not it should continue funding billions of dollars for two other programs, the Home Affordable Modification Program and the Neighborhood Stabilization Program and will hold a vote on discontinuing those programs next week.
Tags: House Financial Services Committee, HID, FHA short-refi, EHLP, Dodd-Frank, mortgage-backed securities, borrowers, investors, Fannie Mae, Freddie Mac