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Fannie has relaxed its credit requirements so that more people can qualify. Homeowners facing imminent “payment shock” will be able to refinance into the loan without first having to clear up unpaid bills that show up on their credit reports. The program also includes borrower-friendly options such as low downpayments, long-term fixed rates, low fees and points, a prohibition on prepayment penalties, a ban on arbitration clauses and is stretching the loan term from 30 years to 40.The number of lenders able to offer the program will increase from 500 to 2,000, Mudd testified at the hearing, “Possible Responses to Rising Mortgage Foreclosures.” “Altogether, we estimate that about 1.5 million homeowners who face resetting ARMs and potential payment shock this year and next could be eligible for our loan options,” Mudd said. The Center for Responsible Lending has estimated that by the end of 2006, 2.2 million households in the subprime market will have lost their homes to foreclosure or hold subprime mortgages that will fail over the next several years. “These are also good alternatives for first-time homebuyers as the riskier affordability loans dry up,” he added. Fannie currently receives 15,000 applications a month for subprime refinancing. Freddie Chairman and CEO Richard F. Syron said the company will this summer offer consumer-friendly subprime mortgages that will include 30-year and, perhaps, 40-year fixed-rate mortgages and ARMs with reduced margins and longer fixed-rate periods. Syron said Freddie Mac is also working on new products aimed at providing more stable subprime financing such as five-year ARMs with margins at adjustment that are as much as 200 basis points below the current step-up. The chairman of the Mortgage Bankers Association, John M. Robbins, applauded the new programs and products. “I commend Fannie Mae and Freddie Mac for their leadership in helping to find solutions to help stranded subprime borrowers,” he offered in a written statement. “The lending industry continues to actively seek ways to ease the ongoing difficulties of some subprime borrowers and having the GSEs on board as a partner is a welcome addition.” Federal Housing Administration Commissioner Brian Montgomery told the House committee that modernizing FHA is the most practical and immediate way to address the needs of a large number of troubled subprime borrowers. FHA modernization legislation, he said, has already been filed in both the House and the United States Senate. National Community Reinvestment Coalition Executive Vice President David Berenbaum suggested legislation that provides for 60-to-90 day stays in foreclosure proceedings nationwide. The stay would allow time to deal with the millions of loans scheduled to reset. According to one study, the interest rates for an estimated 1.1 million subprime loans will reset in 2007 and an additional 882,000 subprime loans will reset in 2008. Berenbaum told lawmakers that NCRC is fighting against aggressive law firms representing lenders, servicers and investment firms, but operating as foreclosure mills. “An immediate fix for the broken marketplace is to stop foreclosures before they further devastate communities and the economy,” he said. “An important tool is foreclosure prevention efforts and remedial public and private sector loan funds, plus new statutory protections and responsible lending practices.” It was the second time in a matter of weeks that the U.S. House of Representatives held a hearing on the troubled subprime mortgage market. The congressional committee listened to ideas from a dozen witnesses that also included national consumer and industry advocacy groups as well as several panelists familiar with subprime lending in Ohio, a state with one of the highest default rates. |
