Mortgage Update - The Federal Government Responds

In response to the so called "crisis" in the mortgage markets, the Federal government responded today, and in some cases, is taking action for trying to clean up the credit mess. While we've suggested in a past post that the industry itself needs to take steps for correcting the situation, some of the moves the government is considering may help those suffering from possible mortgage abuses in the past few years.

President Bush announced today the new FHA Secure program for helping borrowers with good credit to refinance their ARM loans if they are behind in their payments. The program is expected to help around 80,000 individuals who are not in foreclosure but are experiencing difficulties. While it is a step in the right direction, in and of itself, it will do little to help with moving the mortgage markets forward. That will only come when the Senate gets off its butt and finally passes the FHA reform legislation that has been languishing these last 16 months. Only by putting forth a Bill that revises FHA down payment requirements and increases the current archaic loan limit restrictions will real reform move forward. The same would be true for more conventional borrowers if the Federal Reserve would do the same for Fannie Mae and Freddie Mac. However, based on Fed Chairman Bernanke's recent comments, that will not likely appear to happen anytime soon.

In addition, the President called for legislators in Congress to change the current tax code, doing away with income tax due on lender forgiven loan balances and enact new loan disclosure and fraud measures. Again, while these actions may be a good first step, they will not correct the situation that was driven by the major mortgage lenders themselves.

For those looking for a Fed rate cut to help ease interest rate concerns, there's no guarantee it will come either. While Chairman Bernanke said in his speech this morning that the Federal Reserve will stay vigilant and do all in its power to keep the economy on track, their approach appears to be more reactive rather than proactive. Hopefully this approach will change at their next meeting on September 18th.

Finally, a bright spot has come from Ginnie Mae which took action to make available more low-cost financing for military veterans who are buying homes in pricier areas of the country. Beginning September 1st, Ginnie Mae is eliminating the $417,000 cap on mortgages guaranteed by the Department of Veterans Affairs. Ginnie Mae expects that this change will expand the availability of low-cost financing and increase homeownership opportunities for America’s veterans and their families, particularly in these high-cost areas.

While we agree that the government has no business bailing out individuals who made poor decisions with regard to their mortgage financing choices, we do believe that taking actions which will benefit borrowers overall in the future is the right thing to do.

Metro Mortgage Company is a full service federally regulated Mortgage Banker specializing in originating Conventional, Jumbo and FHA/VA loans in 20 States including Florida.

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