Will New Bush Foreclosure Plan Go the Distance? Probably Not

In response to the mortgage crisis and more sweeping, costly Democratic proposals for reform, the Bush administration plans to expand a program to help homeowners underwater in their mortgages.( See Bush to Expand Help on Mortgages in today’s Journal.)

By expanding FHASecure, about 100,000 more homeowners may receive assistance with their mortgages, including those who owe more than their homes are worth, the article says. The program will allow the FHA to insure new mortgages for struggling borrowers but homeowners will only receive the extra help if their lenders voluntarily agree to write down the mortgage principal owed. FHASecure is expected to include about 500,000 borrowers in its program by the end of the year.

To qualify for FHA insurance through the new program, a lender can drop a loan’s principal to a maximum of either 90% or 97% of a home’s new value, the story says. (So, if a home’s value has fallen from $110,000 to $100,000, lenders can drop the principal to $97,000 or $90,000 to qualify for FHA insurance, the article notes.) Also, the assistance will only be offered to homeowners who may have missed a few mortgage payments over the previous year, but are still credit worthy, and will exclude high-risk borrowers, speculators and owners of vacation homes.

Some contend that this measure will fall short of what’s needed to fix the mortgage mess more than 2% of the 46 million mortgage loans in the U.S. were in the foreclosure process in the fourth quarter of last year, while the delinquency rate for home loans hit 5.82%, according to data from the Mortgage Banker’s Association that’s cited in the article. Also, under FHASecure’s current standards, borrowers need to have made six consecutive monthly mortgage payments to qualify, and those defaulting on their mortgages must have only done so in response to a resetting adjustable-rate mortgage.

White House spokesperson Dana Perino acknowledged that the program will not be a housing mess cure-all. This is not a silver bullet that will solve all of the problems in housing, but it will help some additional people stay in their homes, Perino is quoted as saying on the Journal’s Washington Wire blog.

— Lauren Baier Kim