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Mortgage group mulls federal loan program changes
By Patrick Rucker
WASHINGTON (Reuters) - A wave of foreclosures could be prevented if the largest federal home-ownership program were open to more delinquent borrowers, according to a study being mulled by the nation's largest mortgage investor group.
The study circulated within the American Securitization Forum and obtained by Reuters says more than 600,000 troubled homeowners could win new mortgage terms after easing terms of the Federal Housing Administration.
Specifically, the document suggests the FHA loosen its 'FHA Secure' program to aid not just adjustable-rate mortgage holders but borrowers with fixed rates and those who have shown an ability to make steady payments even if they have become severely delinquent in recent months.
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FHA was created during the Great Depression to help high-risk or low-income borrowers win better loan terms by insuring mortgage payments, but policymakers have lately seen its potential to help today's troubled subprime borrowers.
In late August, the White House announced that borrowers who have missed payments since their interest rate has climbed could qualify for refinancing under the FHA Secure program but the effect of that effort has been limited so far.
The new plan was conceived by an American Securitization Forum member and the group's staff believe it "merits serious consideration" as a way to prevent more fallout from the U.S. subprime mortgage crisis, the memo said. It would open FHA Secure to borrowers who became delinquent for any reason and who made any six monthly payments since the loan was originated and three timely payments after the rate adjustment.
The current FHA Secure program is only poised to help around 44,000 subprime borrowers, or 5 percent of those who are more than two months behind in their payments, according to a study circulated by the American Securitization Forum.
The new guidelines would reach 607,000 subprime borrowers, or 68 percent of those who are severely delinquent, it said.
The report does not consider how many more could get FHA refinancing if the loan size limit almost doubles from $367,000 to nearly $730,000 as outlined in a government stimulus package agreed to by the White House and House of Representatives leaders last week. Details of that proposal are still being negotiated, and it must clear the Senate as well.
On Sunday, a spokeswoman for the trade group said the forum "supports responsible expansion of FHA ... While we are discussing a number of ideas with our members, we have not endorsed any specific proposals as yet."
The trade group expects to have structured debate over the merits of the proposal some time after its annual conference in Las Vegas in early February.
A spokesman for the Department of Housing and Urban Development, which oversees the FHA, said on Sunday the agency is "continuing to look for additional ways to help more families stay in their homes" and enhance its foreclosure-prevention efforts.
SUBPRIME PLAN
In early December, the American Securitization Forum agreed to a "rate freeze" plan that would hold interest rates in place for borrowers who can make initial payments but would likely lose their home once rates rise under the original loan terms.
Though the White House unveiled the initiative, the group's blessing was deemed crucial to defend the plan against lawsuits and critics who oppose tinkering with mortgage contracts.
In its memo, the investor group said the "rate freeze" plan does not reach enough troubled borrowers and that a reform of FHA Secure could aid a very distressed segment of homeowners.
(Editing by Braden Reddall)