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The House approved legislation on Wednesday aimed at helping 400,000 strapped homeowners avoid foreclosure and preventing the collapse of troubled mortgage companies Fannie Mae and Freddie Mac.

The vote reflected a congressional push to send election-year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market.

Hours before the vote, President Bush dropped his opposition to the measure, which now is on track to pass the Senate and become law within days.

The White House swallowed its distaste for $3.9 billion in grants for devastated neighborhoods. In return, the administration got both the power to throw Fannie Mae and Freddie Mac a lifeline and the legislation Republicans long have advocated to rein in the government-sponsored mortgage companies.

Treasury Secretary Henry M. Paulson and lawmakers in both parties negotiated the final deal. It accomplishes several Democratic priorities, including aid for homeowners, a permanent affordable housing fund financed by the two mortgage companies and the money for hard-hit neighborhoods. The grants are for buying and fixing up foreclosed properties.

“It is the product of a very significant set of compromises,” said Rep. Barney Frank, chairman of the House Financial Services Committee. “We are dealing with the consequences of bad decisions and inaction and malfeasance from years before,” said Frank, D-Mass.

Paulson said he would push for enactment of the bill by week’s end. Despite disappointment with some items rejected, he said “portions of this bill are orders of magnitude more important to turning the corner on the housing correction and supporting our markets and our economy.”

Bush had argued the neighborhood grants would benefit bankers and lenders. But the White House said a showdown with Congress over the proposal would be ill-timed.

It was a striking split for Bush and many congressional Republicans. GOP leaders said they would not be stampeded into supporting a bill they called a bailout for irresponsible homeowners and unscrupulous lenders, even as they acknowledged it was probably necessary.

“It’s a bill that I wish I could support. It’s a bill that the market clearly needs … but this is not a bill that I can support,” said Rep. John A. Boehner, R-Ohio, the minority leader.

Only 45 Republicans — most from districts ravaged by the housing crisis and some facing tough re-election fights — voted for it.

Liz Glenn, a community planning official in Baltimore County, Md., said the grants “would enable us to acquire and rehab more homes and offer them at an affordable price.”

The Treasury Department would gain power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary. The two companies, chartered by Congress, back or own $5 trillion in mortgages — nearly half the nation’s total.

Sen. Richard C. Shelby of Alabama, the top Republican on the Senate Banking, Housing and Urban Affairs Committee, said Bush’s turnabout reflected political reality.

“They looked at the Hill, they counted some votes and they see there’s pretty broad support for this,” said Shelby, his party’s lead negotiator.

He and Sen. Christopher J. Dodd, the committee chairman, said they would push for swift approval of the measure without any changes.

“We’ll be anxious to move this product along,” said Dodd, D-Conn.

But conservatives led by Sen. Jim DeMint, R-S.C., were threatening to slow the measure unless Democrats allowed a vote on barring Fannie Mae and Freddie Mac from lobbying and making campaign contributions. Senators’ objections could delay enactment of the measure until next week.

Congressional analysts estimate that a government rescue of the mortgage giants could cost $25 billion, but they predict there is a better than even chance it will not be needed.

The bill would let the Federal Housing Administration back $300 billion in new loans so an estimated 400,000 homeowners who cannot afford their house payments could try to escape foreclosure by refinancing into safer, more affordable mortgages. Lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

“The industry really has to step up and use it,” said Bruce Dorpalen, director of housing counseling for Acorn Housing Corp., a nonprofit housing group based in Philadelphia.

The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the agency. It includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers, and increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

Lawmakers abandoned efforts to place conditions on any Fannie and Freddie rescue, but the bill hands the new regulator approval power over the pay packages of executives at the companies.

With worries about Fannie Mae and Freddie Mac looming over the banking industry, the best bet for homebuyers now is probably to lock in a mortgage rate while the scenario plays itself out.

Industry analysts say evaluating which way mortgage rates will trend over the long term will be tricky because of all the unknowns regarding Fannie and Freddie, the two mortgage giants whose capital standing was called into question last week, setting off a market frenzy.

That’s why it makes sense now to play it safe and grab current rates while you still can. A 30-year fixed was going for 6.09 percent Monday, according to Bankrate.com.

“It is my recommendation that as soon as you basically know that you have found a property or are approved for a loan you should go ahead and lock in,” says Arnold Martin, president of Absolute Lending and Mortgage in Fayetteville, Ga. “Right now you have a much better chance of closing that loan if it is locked. If that loan is not locked a lender has much greater opportunity to say, ‘I’m sorry this is no longer going to be available.’ You may have to go out and buy a whole new loan.”

Mortgage rates took a slight dip Monday following an explosive weekend in which the government said it would make a variety of measures available to back up the mortgage debt Fannie and Freddie have on their books.

But whether that drop holds is dependent on an array of factors, the most important being the fundamental strength of the two lenders going forward. Should Fannie and Freddie falter and the government be forced to go out and raise money, most likely through Treasury bonds, that would pressure rates upward and the government probably would have to pay higher yields to get investors to bite on the bonds.

Similarly, if Fannie and Freddie go out and raise money on their own they too would be forced to pay bondholders a premium that also would push up rates.

If, on the other hand, the two companies are as solvent as Washington politicians say they are, rates probably would hold level. With the Federal Reserve in at most a holding plan on its key lending rate, there would be little incentive for rates to fall significantly.

“In the longer term the real question is how the bond market greets this news once they’ve had the chance to digest it a little bit,” says Mike Larson, bank analyst for Money & Markets online newsletter. “It’s never been harder to get a handle on where mortgage rates are going to go.”

Indeed, investors greeted the Fannie-Freddie mood initially with a broad wave of approval but then grew increasingly leery as the day progressed. Worries over the banking sector in the months ahead tempered a fast upsurge in stocks off the opening bell, and investors seemed to be betting on more trouble ahead.

Combined with continued economic unrest regarding inflation and unemployment, the state of mortgages remains murky.

“Even if there’s a temporary calm in the credit markets, bond traders are going to sit back and say, ‘What about the underlying fundamentals?’ ” Larson says. “The reality is what the Treasury and Fed did is the best of bad options. Until something can be done about longer-term problems … I don’t see anything over the longer-term bringing mortgage rates down.”

Martin said the problems could become especially acute for jumbo loans, the mortgages above $417,000 outside the purview of Fannie and Freddie that usually are issued at higher rates and could be even harder to come by as banks protect their capital standing.

That heightens the importance of locking in now, he said.

“If you’re not locked in you won’t have a leg to stand on” if conditions change, he said. “To me it’s not worth the gamble. Rates may not go down.”

Hundreds of worried IndyMac Bancorp Inc. customers lined up Monday to pull as much money as they could from the failed financial institution. However, federal regulators said it could be years before the affairs of the bank were fully resolved.

Charles Tengeri, a retired school teacher, was the first customer to emerge from the Pasadena headquarters of the bank. He held a check for $171,000 — an amount that he said represented most of his savings. “I didn’t think this could happen,” he said. “But I’m glad to get anything out.”

Customer Harvey Soldan said he had more than $100,000 in the bank whose assets were seized Friday by federal regulators. “It’s a question of how much we can get and how soon,” he said while waiting in line. Soldan spent Sunday night at a hotel near the bank so he could be at the door more than three hours before it opened at 9 a.m.

Two-hundred people were in line when the bank opened. A security guard at the door was allowing 10 people at a time to enter the branch. Customers were orderly as the line stretched around the block. The mortgage lender, which succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures, is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, regulators said. The Office of Thrift Supervision said it transferred IndyMac operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

The FDIC insures bank deposits of up to $100,000 per depositor and up to $250,000 for funds in retirement accounts such as an IRA. Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount. As of March 31, IndyMac had total deposits of $19.06 billion. The company operates 33 retail branches, all in Southern California. Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC has said. David Barr, an FDIC spokesman, was stationed outside the IndyMac headquarters on Monday. He said people might actually have more money insured than they think.

Customers will be informed about how their accounts are structured and may be eligible to recoup dollar-for-dollar beyond the $100,000 limit, he said. If deposits aren’t fully insured, customers will receive a receivership certificate and told about the process to possibly recoup more of their money. Barr said it may take several years before the FDIC completely resolves the collapse and addresses customer claims. “We have to completely unwind the affairs” of the bank, he said. “We may sell a portion to another bank, sell real estate. There may be lawsuits. There are a lot of different aspects to this.” He said the FDIC will waive any early withdrawal penalties for certificates of deposit, with interest paid up to the withdrawal date.

Customer James Sherman said he also had more than $100,000 in the bank. “This is my life savings here. I feel really horrible,” he said. Sherman said he was hoping to get 50 cents on the dollar above the federally insured limit, with the remainder possibly applied to his mortgage with IndyMac. “What do you resort to now, putting money back in the mattress?” he asked.

Tengeri said he was hopeful about getting the remainder of his life savings from the bank. “I’m keeping my fingers crossed,” he said. “I have full trust in the U.S. government. It may take a little time but I’m not worried.” 

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DG

The nation is calling for our profession to step up and become more educated in order to provide assistance to homeowners who might be facing the devastation of foreclosure, and you are taking an important first step toward answering that call.

The data shows that foreclosure rates are hovering at an all-time high, despite a strengthening economy. Experts predict these rates will further increase over the coming years, both locally and nationally.

• A number of life circumstances—divorce, family tragedy, illness, career change—that have very little to do with the real estate market can cause a homeowner to unexpectedly fall behind on mortgage payments.
• Furthermore, because many first-time homebuyers are buying homes that are overvalued and utilizing 100% financing, they wind up in an especially vulnerable, negative equity situation from the beginning, making it difficult or even impossible for them to sell their home.

For all these reasons, the demand for creative pre-foreclosure solutions has risen dramatically over the last several years. In an effort to avoid accumulating real estate and bad loans on their books, banks have become more and more eager to negotiate down on their payoff, taking what is now better known as a Short Sale.

Short Sales provide an excellent, win-win solution for the distressed homeowner and their bank.

• The homeowner avoids a foreclosure on their record and the bank avoids the effort and expense of the foreclosure process.

The tragedy is that so few real estate professionals are educated about the Short Sale process, and homeowners remain unaware that such an option is available to them.

Our hope is to cure this by providing the tools and instruction for real estate professionals to better educate and service the distressed homeowners in our communities—because if we don’t, who will?

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DG

info@defaultguide.com

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