FHA Secure Changes Beneficial, CBO Says

The Congressional Budget Office estimates that several hundred thousand borrowers could benefit over the next few years from an expanded FHA Secure program and that it would encourage lenders/servicers to restructure more loans. Without federal involvement, restructurings will be "rare" and unlikely to involve any significant writedown of principal that would leave the borrower with positive equity, the CBO says in a paper that explores policy options for stabilizing the housing and financial markets. "Although Federal Reserve chairman Ben Bernanke has urged loan servicers to consider reducing the principal on outstanding loans, voluntary reductions are likely to be rare," the paper says. The Federal Housing Administration is implementing changes to its FHA Secure program to help more delinquent adjustable-rate subprime borrowers refinance into FHA-insured loans. The CBO admits that FHA Secure has its drawbacks and that lenders could receive a "windfall" on loans they should restructure on their own. "Despite that, lenders will be more willing to restructure more mortgages with federal subsidies than without them," CBO says.