House Passes FHA Bill

The House of Representatives has passed a Federal Housing Administration refinancing bill by a 266-154 vote, and attention now turns to the Senate Banking Committee, which is expected to mark up a similar foreclosure prevention measure soon. It is estimated that the House-passed bill (H.R. 3221) could refinance up to 500,000 borrowers with "underwater" mortgages into FHA-insured loans. But the bill provides little incentive for investors/servicers to participate, because the principal amount of the loan must be written down to 85% of the current appraised value and the noteholder does not share in any upside if property values increase. H.R. 3221 is a legislative package that also includes two other bills the House passed last year -- an FHA modernization bill and a government-sponsored enterprise bill to strengthen supervision of Fannie Mae and Freddie Mac. The House also passed and sent to the Senate a housing tax bill that contains a $7,500 tax credit for first-time homebuyers and $10 billion in revenue bonds that can be used to refinance subprime borrowers. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., is planning to mark up an FHA refinancing bill and a GSE reform bill before the Memorial Day recess.