The vote was Tuesday, Sept. 18, in the House. I held off on posting until I had assured the voting nose count was posted by the government. (If you check the link, Dems in the majority are in regular type, and GOP as the minority are in italics. You can see the crossover was substantial with "NO" votes all only in italics. That shows GOP opposition was more numerous than the GOP crossover, but it was, nonetheless, a resounding vote favoring housing consumers nationwide.)
In Ramsey, Michele Bachmann, GOP, is our Rep., and voted against.
The House vote was 348 - 72, clearly indicating the measure had bipartisan support to command that great a majority.
Bachmann's vote was a major disappointment. I had posted her response to an email I had sent her about housing. She offered a quick response that was generic, but indicative of an understanding of how important the issue is now, and for the 2008 election. I had anticipated more, from her expressions of concern for families facing risk of ruin.
Col. Kline, GOP, did the same as Bachmann, voting against, and Bachmann's vote very often tracks Kline's. My "moderate" GOP barometer, Ramstad, voted for, as did Ellison, DFL, the neighboring MN 5 Rep. I expect all "moderate" Republicans in the House swung their vote in favor of the measure; given the size of the supporting vote count. Musgrave, R. Colorado, is another voter Bachmann tracks regularly, and she was "against" along with Bachmann and Kline.
The NTU, National Taxpayers Union, has posted:
(Alexandria, VA) -- Some policymakers are pressing for government intervention to nurse ailing "subprime" mortgage markets and consumers back to health, but a new study commissioned on behalf of the nonpartisan National Taxpayers Union (NTU) is delivering a warning: don't overmedicate.
"Any issue that touches upon home ownership, and the fear of losing one's home, is bound to generate passionate discussion," said study author Jacob Vigdor, Associate Professor of Public Policy Studies and Economics at Duke University. "While many agree that the current wave of delinquencies and foreclosures will strain households and communities, there is considerable disagreement as to whether government involvement is advisable, and if so, what shape it should take."
Recent tremors in the housing market have significantly impacted some subprime mortgage lenders and borrowers, leading to many proposed "fixes" from state governments, Congress, and most recently President Bush. But Vigdor, a Harvard-educated economist and expert in housing issues, believes that intervention in this market could have unforeseen consequences.[...] # According to recent data, about 7 percent of subprime loans originating in 2006 were in danger of being held for sale, foreclosed upon, or going delinquent. Those not facing such problems may be squeezed, but, as Vigdor notes, "The only sure way to eliminate the high rate of foreclosures in the subprime market would be to eliminate the market entirely," depriving the other 93-95 percent of subprime borrowers of their American Dream.
# Public officials have called for foreclosure moratoriums, taxpayer-backed loans to troubled borrowers, and lender-restrictions that effectively rewrite mortgage contracts - all of which socialize the risk while encouraging recklessness by borrowers and lenders. This "moral hazard" means that "wealth is redistributed from the responsible to the irresponsible, from the ethical to the unethical," Vigdor observes.
That's only an excerpt and the website link is given before the quote, if you want to read more. Perhaps that "socialize the risk" language is a worry over creeping socialism. It sounds that way. Hard to say, but they have a study paper, 18-pages long, for those wanting to invest the time to comb through it to see what the probable genesis of the Bachmann viewpoint is, if she will explain her vote in taxpayer protest - taxpayer revolt terms. Perhaps she has other explanations, and I would hope she posts her voting reasons on her congressional website.
That's what it's there for - explaining things our Representative does so we, the voters in Minnesota's Sixth District, can better understand what is happening.
I sure would not want to see many people in the Saint Cloud to Stillwater range of the Sixth District, reaching through Ramsey and all of Anoka County, lose their homes in foreclosure because of some lawmakers' worry over creeping socialism. Not these days. After all, the Soviet Union is history, and mortgage foreclosures are today, now, newspaper news, not something from history books.
But the NTU does have its White Paper, and I leave you to decide whether it interests you enough to have a look.
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The day before the vote, Sept. 17, and you know how "Developers are Crabgrass" states my feelings; that day, however, in anticipation of the vote the NAHB, the National Association of Home Builders, published this view:
September 17, 2007 - The National Association of Home Builders (NAHB) today called on the U.S. House of Representatives to approve legislation this week that would allow the Federal Housing Administration to insure more home loans and address problems in the subprime mortgage market.
Underscoring the importance of this issue to the housing community, NAHB sent a letter to every House member urging them to support H.R. 1852, the Expanding American Homeownership Act of 2007, when the bill goes to the House floor later this week.
“Because this measure is so vital to restoring the FHA’s capacity to support affordable mortgage financing and to allow the agency to address problems in the subprime mortgage market, NAHB has designated passage of H.R. 1852 as a key vote,” said NAHB President Brian Catalde, a home builder from El Segundo, Calif.
Faced with a deepening constriction in the availability and affordability of housing credit at time when FHA’s programs have failed to keep pace with competing conventional mortgage loan programs, NAHB told lawmakers that “Congress now has the opportunity to modernize the FHA and enable it to play a key role in stabilizing the mortgage markets, while offering borrowers a safe and fair mortgage alternative.”
In addition, NAHB is also urging House members to support a bipartisan amendment to H.R. 1852 offered by Reps. Barney Frank (D-Mass.), Gary Miller (R-Calif.) and Dennis Cardoza (D-Calif.) that would enable more creditworthy borrowers to purchase an FHA-insured home in major metropolitan markets by raising the FHA loan limits in high-cost areas. Currently, the FHA loan limit is too low to allow many potential home buyers to utilize the FHA program in markets where housing costs run high.
Bachmann, Kline and Musgrave got the builders' letter. I am sure it concerned them, but it did not alter their vote. Builders and consumers are together, on this need for U.S. consumers to be able to buy and keep what the builders build for them. It's that simple. The Chairman of the House Financial Services Committee on the day of the vote noted the cold comfort the Fed has grudgingly provided homeowners:
Washington, DC - Rep. Barney Frank, Chairman of the House Financial Services Committee, today offered the following statement regarding the Federal Reserve's interest rate cut:
“I am pleased the Federal Open Market Committee decided to cut the federal funds rate and the discount rate; I am surprised, however, that their continued concern about inflationary risk outweighs what I believe to be growing risks to sustained growth. I hope that, in this instance, markets and consumers will pay more attention to what the FOMC did than to what it said.”
Also, Tuesday on the day of the vote, the committee issued press release explaining:
The measure, originally introduced by Representative Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and Barney Frank, Chairman of the Financial Services Committee, will enable FHA to serve more subprime borrowers at affordable rates and terms, recapture borrowers that have turned to predatory loans in recent years, and offer refinancing loan opportunities to borrowers struggling to meet their mortgage payments in the midst of the current turbulent mortgage markets.
“There is an affordable housing crisis in America. In recent months, that crisis has exploded beyond the poorest renters and homeowners, to threaten the domestic economy. H.R. 1852 is a necessary step in walking us back from the brink and in the direction of meeting the housing needs of all Americans,” said Chairwoman Waters.
“A revitalized FHA program will help future homeowners realize the dream of home ownership, and will prevent many first time and inexperienced home buyers from being pushed into loans that are unaffordable or difficult to understand,” said Chairman Frank. “The bill we passed today will help people all across America because we have enacted provisions to allow the FHA to insure loans in high cost areas.”
Press coverage is in now, and I leave the local two papers alone and look nationwide. L.A. Times carried a Reuters feed:
September 19, 2007
WASHINGTON — -- The U.S. House of Representatives voted Tuesday to overhaul the Federal Housing Administration and allow the mortgage insurance program to help more homeowners in danger of losing their homes.
The FHA, set up in 1934 during the Depression, was designed to help first-time home buyers win favorable loan terms by guaranteeing mortgage payments to lenders.
The new legislation would broaden underwriting standards so that current homeowners could refinance before they lose their homes.
Lawmakers passed it by a vote of 348 to 72. The Senate Banking Committee is due to vote today on its version of the legislation.
If the full Senate passes the bill, lawmakers from both chambers will meet to draft compromise language for consideration by President Bush.
Although the Bush administration has spoken in favor of overhauling the FHA, it has opposed some calls to raise the value of loans that can be insured by the program.
Fannie Mae and Freddie Mac, two major government-sponsored mortgage funders, can invest in loans of $417,000 or less. The Bush administration supports raising the FHA loan limit to that level but no higher.
The legislation passed by the House on Tuesday would allow for the loan cap to reach $829,750 in some circumstances.
Under existing rules, loans that exceed $362,000 are not FHA eligible, which has effectively eliminated the program along the East and West coasts.
Perhaps opposition in the midwest might be of a "let them eat cake" tenor, with regard to the higher priced home markets on the coasts. I would hope not. It is not a regional thing, not at all.
East Coast, The Hartford Courant (printing "Stories from 1764") yesterday focused on the Senate follow-up situation:
The Senate Banking Committee today agreed on compromise legislation that will make it easier for consumers to get Federal Housing Administration-backed loans.
The "FHA Modernization Act of 2007," considered one of Washington's most important efforts to ease the subprime mortgage crisis, won easy approval and is headed to the Senate floor.
"We need to make sure that credit is available, including for subprime borrowers, on fair terms so that the people of this country have an opportunity to build wealth for the future," Committee Chairman Christopher J. Dodd, D-Conn., told his colleagues.
"A revitalized, strengthened, and modernized FHA can be -- and, under this legislation, will be -- a source of this constructive, wealth-building credit," he said, "both for new homeowners and for people who are seeking a way out of the abusive loans in which they are currently trapped. "
Among the bill's provisions:
# Higher FHA loan limits. Limits on an FHA loan can rise to 100 percent of the median home price in an area, up from 95 percent, or $417,000, whichever is lower.
Currently, FHA loans cannot exceed $200,160 to $362,790, depending on the housing market in certain areas. In Fairfield County, for instance, the cap is at the high end, but in Windham County, it's the lower amount.
The White House has said it "strongly opposes" any provision to back mortgages above $417,000.
A policy statement said the program "should remain targeted to traditionally underserved homebuyers, such as low and moderate income families."
# Smaller down payments. Currently, such loans require at least 3 percent down. The Dodd bill cuts that to 1.5 percent, in most cases. The down payment reduction had been a source of controversy, and the 1.5 percent limit is seen as an important compromise. Some senators wanted to allow no money down.
# Easier-to-get reverse mortgages. Elderly homeowners would find the loan limit up, a key provision championed by Republican committee members.
# Lower origination fees for elderly homeowners. The current fee is 2 percent; it would drop to 1.5 percent.
The FHA measure has picked up strong support. Dodd's chief collaborator was Sen. Mel Martinez, D-Fla., general chairman of the Republican National Committee, and letters of support came from the Mortgage Bankers Association, the Realtors, the Homebuilders, and lenders such as Bank of America, LendersOne, JP Morgan Chase, Wells Fargo and Countrywide.
August was a devastating month for homeowners across the nation. A national coverage paper, Christian Science Monitor, had these graphics with its story today, Sept. 20:
This week, in response to a record and rising pace of foreclosures, Washington is offering the first signs of legislative relief.
As the Federal Reserve cut interest rates by a surprising half percentage point Tuesday, Congress has begun moving on the first of several bills to help at-risk homeowners. Votes this week involved the expansion of federal insurance for home loans.
Even so, neither the Fed nor Congress appears likely to contain the foreclosure wave that is on pace to hit 1 million or more homeowners next year.
Rate cuts by the Federal Reserve, after all, can go only so far toward resolving issues that extend far beyond the price of credit. Over time, Fed rate cuts should help open the money spigot for people buying or refinancing homes. But Tuesday's reduction in the federal funds rate to 4.75 percent doesn't mean mortgage rates will fall immediately by that amount.
And even boosters of legislative action see the new bills as initial steps.
What the policy moves might do is make the rise in foreclosures less severe.
"It'll probably make a dent in that number, but just a dent," says Patrick Newport, a housing expert at Global Insight in Lexington, Mass.
Brian Montgomery, who heads the Federal Housing Administration, says more than 200,000 homeowners could be helped by the new legislation regarding the FHA, according to an Associated Press report.
[...] Legions of borrowers, however, have a problem that the legislation doesn't directly address: Their homes are "under water," Mr. Newport says, meaning the homes are now worth less than the balance on the loan. In such cases, even an FHA guaranty and the desire of lenders to avoid the costs of foreclosure don't open the door to refinancing.
"Prices are dropping a lot," he says, in four key states: California, Arizona, Nevada, and Florida. The buyers who bought near the price peak, in 2004-2006, were also the most likely to hold the riskiest mortgages. These loans featured big resets and were made with little or no down payment.
Some housing experts, in fact, say that federal policymakers should do much more, given the scope of the problem.
"We've got a crisis," says Jeffrey Lubell, executive director of the Center for Housing Policy, a Washington, D.C., research group. The proposed expansion of federal insurance for loans is "a good start but is not aggressive enough."
And, he says, the rate cut offers reassurance but not a solution.
"It will get more credit flowing," he says. But "it doesn't ultimately forestall the foreclosures that are going to happen."
Any housing-crunch relief, whether provided by politicians or the central bank, raises difficult questions of how far officials should go toward a bailout of private-sector lenders and borrowers who, by many accounts, acted unwisely.
Congress, the White House, and the Fed are all navigating that issue cautiously. The Bush administration, for one, is wary of any moves that would make taxpayers liable for a big housing rescue. But none of these parties is taking a do-nothing approach. Several reasons stand out:
•Many at-risk homeowners didn't realize the risks they were taking. Many others, it's true, were buyer-investors, who knowingly took loans with risky terms. But often mortgage brokers focused borrowers on the initial "teaser" interest rate, or promised that borrowers could refinance later to avoid a steep reset.
•Lenders and borrowers are paying a price already. Foreclosure rates have risen to record levels, and some mortgage companies have collapsed. This week the largest home lender, Countrywide, said it has virtually exited the business of making subprime loans to people with poor credit histories.
•The risks to the economy have grown in recent weeks. Foreclosure is just one of the forces affecting home prices. But economists at Goldman Sachs estimate that the rise in foreclosures over the past year translates into a decline in home prices of about 6 percent by next year. A continued decline in home prices could affect consumer spending.
Such a decline also threatens to further expand the number of foreclosures. If home prices are falling, more recent buyers go "under water." If a rate reset pushes them into default, they can't pay off their loan by selling the house.Congress is also mulling other moves, including letting two government-created agencies, Fannie Mae and Freddie Mac, buy risky loans once they're renegotiated, to keep borrowers in their homes. Another proposal is to enable bankruptcy judges to adjust loan terms. Mr. Lubell says other steps should include more money for nonprofit foreclosure counseling and the creation of innovative mortgage products for homeowners at risk.
Bloomberg, carried its report today:
Bob Ivry / Bloomberg
New York: As many as half of the 450,000 subprime borrowers whose mortgage payments increase in the next three months may lose their homes because they can’t sell, refinance or qualify for help from the US government.
“Short of the cavalry riding in over the hill, a lot of these people are just stuck,” said Christopher Cagan, director of research and analytics at Santa Ana, California-based First American CoreLogic, the risk management unit of the biggest US title insurer.
The number of borrowers whose mortgage payments jump in the next three months will be the second highest ever for a quarter, according to Credit Suisse Group, Switzerland’s second biggest bank. 27% have already missed a payment, said First American LoanPerformance, which owns the largest database of US mortgages. That makes them ineligible for the federal housing administration (FHA) bailout proposed last month by President George W. Bush.
There’s no lifeline in sight for subprime borrowers, who face an average increase of 26%, or $400 (Rs16,200) a month, according to CoreLogic. Falling prices and a rising inventory of unsold homes make it difficult or impossible to sell or refinance without losing money and government programmes aren’t designed to aid the most desperate.
That leaves foreclosure as the only alternative, and one that will deepen and prolong the worst housing downturn in at least 16 years.
Vanishing equity
Robert Murray of Middletown, New Jersey, said he didn’t pay enough attention when he took out a five-year adjustable-rate mortgage in 2002. This month, his payments ballooned to $1,800 from $1,300. Because he makes about $90,000 a year at his Newark Liberty International Airport maintenance job and hasn’t missed a payment, he said he hoped he might be a good candidate to refinance.
Since the value of his home has declined from the $265,000 he owes on two mortgages, Murray’s equity has vanished. If Murray were to apply for an FHA-insured refinance, he’d be out of luck.
The FHA bailout programme, called FHASecure, requires the borrower to have at least 3% equity in the home. Some borrowers can get a second mortgage in addition to the FHA loan to cover the entire value of their houses. Murray borrowed more than his home is now worth, so he would have to write a check of at least $45,000 to close a refinance. He doesn’t have the cash.
“I’m way upside down,” Murray said. “The payments will kill me now. I don’t know what I’m going to do.”
Home prices
About 48% of subprime borrowers wouldn’t qualify to refinance into a mortgage that conforms to the underwriting rules established by government-sponsored agencies Fannie Mae in Washington and Freddie Mac in McLean, Virginia, according to a report by New York-based analysts for UBS AG, Switzerland’s largest bank.
“There are a number of people who have mortgage debt that’s more than the value of their house, and a lot of those people are going to walk away,” said David Olson, president of Wholesale Access Mortgage Research & Consulting Inc. in Columbia, Maryland. “That will put more homes on the market, which already has too many.”
The Federal Reserve’s half-point benchmark interest rate cut on Tuesday will have little impact on borrowers whose mortgages are adjusting, said Ed Leamer, director of the UCLA Anderson Forecast in Los Angeles.
“It’s not going to alter the housing situation, or clarify defaults and delinquencies,” Leamer said.
US home prices fell by a record 3.2% in the second quarter, according to the S&P/Case-Shiller Index. Lawrence Yun, chief economist for the Chicago-based National Association of Realtors, has warned that year-over-year prices will fall for the first time since the Great Depression of the 1930s.
Price reductions
It would take 9.6 months to sell off all the existing homes on the market, the longest amount of time in at least eight years, according to the Chicago-based realtors group.
Listings in the Orlando, Florida, area show 26,300 homes for sale, a 20-month supply, said Gary Balanoff, a real estate broker with ReMax Select in Oviedo, Florida.
“I’ve been in business 23 years, and I’ve never seen some of the price reductions we have here,” Balanoff said. “It’s painful for people.”
[...] Subprime mortgages are available to borrowers with bad or incomplete credit histories. They made up about 20% of home loans issued last year and about 11% in the first half of this year, according to Inside Mortgage Finance, an industry newsletter.
The number of adjustable-rate subprime mortgages rose to 72.5%, or $1.26 trillion, of all adjustable-rate loans outstanding in the first quarter, a 17-fold increase over 2001, UBS said.
About 57% of mortgage broker customers with adjustable-rate mortgages were unable to refinance into a new loan in August, according to a study by Campbell Communications, a market research firm in Washington.
Adjustable-rate mortgages to subprime borrowers account for 44% of all new foreclosures, according to the Mortgage Bankers Association in Washington.
Adjustable rate mortgage
“A lot of the folks who are in trouble are in trouble even before their mortgage rate resets,” said Bert Ely, a banking consultant in Alexandria, Virginia. “They can’t refinance because they shouldn’t have gotten their mortgages in the first place.”
Adjustable rate mortgages of all kinds worth $139.2 billion, the most ever, are scheduled to reset at higher interest rates in the next three months, according to First American LoanPerformance in San Francisco. Subprime adjustable-rate mortgages make up $84.4 billion of that total.
In the third quarter, $136.7 billion of mortgages were slated for reset, with subprime comprising $87.4 billion.
About 2.91 million subprime borrowers have adjustable-rate mortgages, about 90% of which will have reset at higher interest rates by the end of 2008, LoanPerformance said.
There's a host of other reporting, but one closing item, a DC beltway insider, with experience, writes a letter to the editor, yesterday's washingtonpost.com:
Regarding the Sept. 9 editorial "Revitalizing the FHA":
An expanded role for the Federal Housing Administration is needed to help resolve problems in the subprime mortgage market. A revitalized FHA could help families refinance their homes and avoid foreclosure while once again giving the agency a leadership role in meeting housing needs that the private mortgage market is not filling.
The need, however, far exceeds the Bush administration's limited proposals. The FHA can and must play a far more robust role in aiding the hundreds of thousands of families facing foreclosure.
One promising approach suggested by the National Housing Conference's Center for Housing Policy is "shared equity," through which the FHA would provide fixed-rate mortgages, at affordable amounts, to families facing foreclosure. The balance of such a loan would be converted into a mortgage that would be repaid when the home is sold, along with a share of any home price appreciation.
JOHN K. McILWAIN
Washington
The writer is a senior resident fellow at the Urban Land Institute and chairman of the Center for Housing Policy.
That "shared equity" is but one effort to find an answer, and the efforts go, as the stories suggest, beyond the recent House effort which was, unfortunately, itself too much for Michele Bachmann to favor. What will she say about other more aggressive moves to protect people from homelessness? We can only wait. And see.
Please contact Bachmann or Ellison, if you read this and are represented by either. Bachmann in particular needs input, to alter her position to favor homeowners and consumers over the lending interests that have enriched her reelection coffers greatly. She needs to hear from US. The voters. Those perhaps facing an "ARM-twist."
Each has a "contact me" page on their official Congressional website; Bachmann here, Ellison here.
With the teaser low initial rates of the ARMs, Adjustable Rate Mortgages, soon to ratchet up to higher monthly payment levels, having a better shot at refinancing via an FHA conventional fixed rate loan might be a help to some. The more extreme subprime borrowers, as reporting suggests, those who might not qualify - well, they face foreclosure now and possible homelessness, because they perhaps would not qualify for tighter credit via FHA aid at the levels planned now, or otherwise.
This is not a partisan issue. It is a homeowner protection issue. Families own homes and being for reform that helps our families is what we expect from our Representatives, from either party. Even the Crabgrass has grown to know that.