Veto of Foreclosure Bill Not a Certainty

REALTOR® Magazine Online Edition Daily Real Estate News May 16, 2008

Veto of Foreclosure Bill Not a Certainty The House-passed bill to address the housing crisis through targeted FHA intervention and other NAR-backed provisions isn’t dead in the Senate just because President Bush has threatened to veto it.

That's the message from House Financial Services Committee Chairman Barney Frank (D-Mass.), who spoke to REALTORS® at NAR's 2008 Midyear Legislative Meetings & Trade Expo on Thursday.“It’s still an open question whether President Bush will veto the bill,” said Frank, who praised REALTORS® for their highly effective grassroots activism in working for this and other measures.

Frank’s optimism about prospects for his bill, the American Housing Rescue and Foreclosure Prevention Act (H. R. 3221), stems in part from his ongoing conversations with key Senate lawmakers and U.S. Department of Treasury Secretary Henry Paulson, he said.

The bill includes reforms to FHA as well as oversight reforms of the secondary mortgage market companies Fannie Mae and Freddie Mac. Both were provisions sought by the Bush administration. The bill also includes a $7,500 tax credit for first-time home buyers.

The administration’s main objection to the bill is a provision that would allow FHA to insure replacement financing for troubled borrowers.

The bill would encourage lenders to write down a borrower’s existing mortgage to 85 percent of the appraised value of the home in exchange for government-backed insurance on the replacement loan.

The program is expected to help an estimated 500,000 borrowers, at a cost of about $4,800 per borrower. “That’s a small price to pay to avoid all the problems associated with foreclosure,” said Frank.

The Bush administration’s approach to foreclosure prevention, which includes an initiative called FHASecure, is ineffective without any incentive for lenders to make significant write-downs on troubled mortgages, he said.

Frank said he’s willing to see the bill broken up and passed in pieces if that’s what it takes, as each individual provision is critical.

One of the key pieces would make the higher FHA and conforming loan limits passed earlier this year permanent. To let those limits, which now stand at $720,750, go back down at the end of 2008 would be “very disruptive” to the housing market, Frank said. Before their increase, the limit was fixed at $417,000.

— By Robert Freedman for REALTOR® magazine online