From InmanWiki

Posted on myphoenixmlsblog.com October 10, 2007

By Bob Stahl, MyPhoenixMLS.com

There are a number of "fixes" (some say bail-outs) for the foreclosure crisis - which is only going to get worse, as 2.5 million more homeowners face adjusting rates before the end of 2008.

According to Moody's Economy.com, as many as 1.7 million homes could fall into foreclosure by the end of 2008. That's a lot of affected homeowners -- many hard-working families.

So lawmakers have been scrambling to create new ways to help homeowners facing foreclosure. Here's a list of some of the programs that have already been implemented or are being considered:

•1.      FHASecure could help nearly a quarter of a million homeowners avoid foreclosure by allowing homeowners in default on their mortgages to refinance into FHA loans (which lenders are more likely to make because they're backed by the government). Homeowners may qualify for an FHA-insured refinance if they meet the following requirements: · A history of on-time payments for at least six months before their loans reset to higher rates · Interest rates scheduled to reset between June 2005 and December 2009 · 3 percent equity in their home, or the cash equivalent · A sustained history of employment · Sufficient income to make their FHA-insured mortgage payment and all other obligations

•2.      Lawmakers have proposed additional legislation - which is expected to pass in Congress - to reform FHA lending, including: · An increase in FHA loan limits to the same as the conforming loan limit (currently $417,000) or perhaps more · A decrease in down payment requirements (homeowners would no longer be expected to have a 3 percent down payment; they could get an FHA mortgage with 0 percent down) · Reduced complexity

•3.      Last Thursday, the U.S. House approved a bill that would offer tax relief to homeowners in foreclosure. Under current law, if a homeowner's lender forgives part of the homeowner's debt (e.g. in a short sale, where the home is sold and the difference between the sales proceeds and the loan balance is forgiven) that amount is considered taxable income by the IRS. Under the proposed law, forgiven debt would no longer be considered taxable income.

•4.      Last week, Democratic lawmakers urged President Bush to appoint a mortgage czar to "help cope with an expected wave of foreclosures from the housing slump."

•5.      A number of groups have proposed reforming the bankruptcy code. According to a recent article by the online magazine Knowledge@W. P. Carey, "In April, the National Association of Consumer Bankruptcy Attorneys (NACBA), in partnership with a number of other consumer organizations, proposed to Congress a series of bankruptcy reforms, including expanding Chapter 13 to allow debtors to write down mortgage loan amounts to the current fair market value of their home and restructure the mortgage debt based on a fixed interest rate. Senator Richard Durbin of Illinois reportedly plans to introduce an amendment, called the Helping Families Avoid Foreclosure Act, with provisions akin to the NACBA's proposal."

•6.      In May, the House passed a bill to allow Fannie Mae and Freddie Mac (the largest purchasers of loans on the secondary market and the entities that by default set the "rules" for conventional lending in the U.S.) to purchase loans above the conforming loan limit of $417,000 in higher-cost areas. Currently, Fannie Mae and Freddie Mac only purchase conforming loans - not including subprime loans or jumbo loans (those with loan values above $417,000). The legislation would allow Fannie and Freddie to purchase loans up to a region's median price (or $625,500, whichever is lower), if the median price in that region is higher than $417,000.

•7.      On Wednesday, the White House announced the creation of a new mortgage industry coalition. The coalition will offer a resource center and toll-free advice lines for homeowners facing foreclosure. The toll-free lines are 1-800-451-4505 and 1-888-995-HOPE.

•8.      The Chair of the Federal Deposit Insurance Corporation (FDIC) Sheila Bair recently urged mortgage lenders to freeze adjustable-rate mortgage rates and/or convert ARMs to fixed-rate mortgages. She said, "I think some categorical approaches are needed, and needed urgently. We think the flexibility is there for this. For instance, for owner occupied housing where the loan is current ... just convert that subprime hybrid ARM into a fixed-rate mortgage. Keep it at a starter rate. Convert it into a fixed rate. Make it permanent and get on with it."