According to an article by the AP, there are several plans circulating the House, Senate and White House that call for expanding the FHA programs to help struggling homeowners with an option to save their house.

While nothing has passed yet, the bills are gaining a lot of attention because many homeowners have no current option to refinance their home due to the fact that it is “under water” — meaning they owe more than their home is worth.

Highlights of the bill being proposed by Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, that is scheduled for a committee vote this week and is expected to move through the House in early May:

• It’s unclear how many would qualify, however, even under far looser FHA standards — but the number may be as high as ONE MILLION.
• The agency would collect a 3 percent fee on the refinanced loans, as well as annual 1.5-percent premiums, and share a portion of borrowers’ future proceeds if the property is refinanced again in the future or sold.
• To take part, a loan officer could contact an FHA-approved lender, who would calculate the terms of an affordable mortgage the borrower could be expected to repay. If the existing mortgage holder agreed to take a substantial loss — he would get no more than 85 percent of the home’s value and pay FHA fees and closing costs — the FHA lender would pay off the loan.
• The new, fixed-rate loan would be for no more than 90 percent of the home’s value.
• To qualify, borrowers would have to be devoting at least 35 percent of their monthly pretax income to a mortgage payment on loans originated before Jan. 1, 2008.
• With the new loan, FHA could allow a borrower’s total monthly debt load — including student loan, credit card and car payments — to reach as high as 55 percent of monthly net income if he made at least six months of timely mortgage payments on the original mortgage. That’s a substantially looser standard than the agency’s current 43 percent limit.
• Homeowners also would have to share with the FHA any profit or gain in any future refinancing or from selling their homes. FHA would get at least 3 percent of the original loan amount when the borrower sold or refinanced. To discourage borrowers from using the program to quickly “flip” their house for a profit, FHA would reap all of the proceeds if the sale or refinance was within a year. That percentage declines 20 percent annually.
• The plan is aimed at homeowners hit by the double whammy of the credit crunch and housing downturn. Many of them have subprime loans that are resetting at much higher rates, and can’t sell or qualify for a new loan because — due to slumping housing prices — they owe more than their homes are worth. That is known as being “underwater.”
• The program would only be open to owner-occupied properties; not second homes or investment properties.

According to Eric Stein at The Center for Responsible Lending:

“It won’t help everybody, but would help some people who are stuck. They can’t sell or refinance because they’re under water. They’ve gone to their servicer and cannot get a modification of their loan. Now the only option is to lose the house to foreclosure.”

Will it pass in any form? Stay tuned. It could come as soon as early summer.

– Tammy