Mortgage Finance Reform Bill Moves Forward

A bill proposing mortgage reform and rescue has taken the next step forward gaining passage in the Senate and placing it on course for approval very soon.  The bill requires so-called modernization of the Federal Housing Administration (FHA) and seeks to create new regulation and control of government sponsored enterprises (GSE) titans, Fannie Mae and Freddie Mac.  As part of the deal, in hopes of sparking the sagging housing market, over $14 billion in tax breaks for new home buyers as well as first time buyer credits of up to $8,000 per homebuyer are to be included.  The main component of the plan would permit the FHA to back up to $300 billion in new loans to provide an estimated 400,000 distressed homeowners with affordable fixed-rate loans, requiring lenders who consent the option to agree to principal reductions on some loans and then to re-coup some of their losses at the time the property is sold (which the homeowner must agree to) in hopes of avoiding the costly foreclosure process.  The overriding concept of the proposed measure is to have the government provide a safety net for distressed homeowners.  The White House has several objections to the measure and wants to avoid the perception that it is a bailout for lenders who actually contributed to the mortgage mess.  The White House also wants to do away with seller-funded down payment assistance programs which have been associated with loans having high rates of default.       

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