San Francisco - Tens of thousands of California families could benefit from affordable government-insured mortgages under a plan to be announced shortly that will temporarily increase home loan limits, U.S. Department of Housing and Urban Development Secretary Alphonso Jackson said today. Highlighting the Bush Administration's plans to help Americans keep their homes, Jackson said the President's economic growth package, which became law last month with wide bipartisan support, could allow more than 30,000 California families to be eligible over the next several months for safe, affordable mortgages insured by HUD's Federal Housing Administration (FHA).
"The plan raises FHA's loan limits, enabling more families to qualify for a safe, affordable FHA mortgage. This is critical for California, where most families are currently priced out of FHA loans. Because the FHA loan limits didn't reflect the housing market in California and other high-cost states, a vacuum was created that was filled by exotic subprime loans. We estimate that nearly 33,000 Californians will benefit over the next 18 months," Jackson said in speech to the Commonwealth Club of California.
This week, FHA will publish temporary loan limits that will range from $271,050 to $729,750. This increase will help provide economic stability to communities in California and give hundreds of thousands of homeowners and homebuyers throughout the country a safer, more affordable mortgage alternative. Loan limits will be set at 125 percent of the median sales price for the area. Currently, FHA loan limits are capped at $362,790.
However, these higher loan limits are temporary and expire at the end of 2008. President Bush and Jackson continue to call on Congress to pass a permanent bipartisan solution to help more families quality for FHA-insured mortgages, which allow low-income, minority and first-time homeowners access to prime-rate financing so they afford to purchase a home. While FHA has seen an increase in business in California, FHA modernization legislation still remains critically necessary. Legislation, which has been pending in Congress for two years, offers flexible downpayment requirements, permanent loan limits higher than the current amount of $362,790, and fairly-priced insurance premiums.
"FHA modernization could help a quarter of a million families this year alone. It passed the House and Senate in overwhelmingly bipartisan fashion. But a final bill has yet to cross the President's desk. Congress must act now," Jackson stressed.
Jackson also explained how the Bush Administration's aggressive efforts are keeping hundreds of thousands of families in their homes. The Secretary pointed to FHASecure, the refinancing arm of FHA, which has helped more than 100,000 homeowners refinance their mortgage since it was announced last fall. FHASecure includes homeowners who are current on their loan or past due because their teaser rates reset; some borrowers who owe more on their homes than they are worth; and those in the process of foreclosure. Families are saving an average of $400 a month compared to the cost of their previous exotic subprime loans. FHASecure is on pace to help 300,000 families by the end of 2008.
"FHA is back. And we're letting the American people know about it, sending letters out to 850,000 homeowners with resetting rates, including 54,000 Californians, who might qualify for FHA," Jackson added.
The HOPE NOW Alliance, representing 90 percent of the subprime market, has also responded to the Bush Administration's call for action and is helping homeowners in need of mortgage relief. Formed by Jackson and Treasury Secretary Henry Paulson, HOPE NOW has implemented a plan that makes more than one million people eligible to modify their home loans, refinance into FHASecure, or have their interest rates temporarily frozen. Recently, HOPE NOW introduced Project Lifeline, which makes thousands of at-risk borrowers eligible for a pause in the foreclosure process while servicers try to modify their loans.
"I am pleased by their actions...I see denial replaced with hope...And proof that foreclosure is not inevitable-that it is, in fact, preventable." Jackson said.
To stress the importance of housing counseling, Jackson pointed to studies that show homeowners in need of financial help responding more quickly to community and non-profit groups than to lenders and banks. Emphasizing the importance of financial literacy, Jackson said 96 percent of households that saw a HUD-approved counselor avoided foreclosure. The Bush Administration has increased funding for housing counseling by 150 percent since 2001. President Bush's new budget proposal would increase it by $65 million. Currently, HUD's non-profit partner NeighborWorks is distributing an additional $180 million in grants for foreclosure prevention counseling.
"More than half of all homeowners in foreclosure did not discuss it beforehand with their servicer or lender. We must change this attitude. With the help of our housing counselors, we are," Jackson concluded.