White House

Bush's plan for aiding homeowners is less than it appears

WASHINGTON — President Bush on Friday unveiled his plan to address homeowners who face foreclosure in the nation's credit crunch and housing slump.

The plan was announced days before Congress returns from its August recess with housing issues high on its agenda. The proposals, however, duplicate efforts already under way by Congress and other federal agencies, would help at most 21 percent of the homeowners facing foreclosures and would do little to help areas in which inflated real estate prices are a problem.

Bush called on Democrats to approve a modernization of the Federal Housing Administration, which passed the House of Representatives last year with bipartisan support but was quashed by Senate Republicans.

He promised to require greater disclosure from lenders, a move on which federal bank regulators already have provided guidance. He promised to get tough with unscrupulous mortgage brokers, but they're largely regulated on the state level. And during a briefing Friday, a senior administration official acknowledged that the plan would do little to help states with high real estate prices, such as California.

That's because more than half of California homeowners carry mortgages that still are well above the higher FHA loan limits in the modernization bill.

What, then, does the Bush plan do? Here are some answers:

Q: How many borrowers with sub-prime loans — those given to homeowners with the weakest credit histories — will the plan reach?

A: The Federal Housing Administration expects to have refinanced 100,000 sub-prime homeowners with adjustable-rate loans in the current fiscal year, which ends Sept. 30. It expects to refinance another 140,000 next year through its FHASecure, a new name for the refinancing it's already doing.

Q: Does that cover most of the problem loans?

A: Not even close. The administration admits that it'll be able to reach, in a best-case scenario, 480,000 qualified sub-prime borrowers by the end of 2009. But it thinks that 600,000 or 700,000 will qualify for help.

Housing advocates expect 2.2 million or more foreclosures tied to the sub-prime meltdown. The administration thinks that two-thirds of the sub-prime loans that were issued in 2005 and 2006 — when lending standards weakened significantly — were exotic adjustable-rate loans with low teaser rates that will reset to much higher rates late this year and next year. Housing groups say 81 percent were. Whichever number is correct, the worst is still ahead on foreclosures.

Q: Isn't the president's call for Congress to pass a modernization bill for the FHA a good thing?

A: Yes. But the bill introduced by the administration last year — modified and passed by the House with broad support — died in the Senate because Bush and Republican senators didn't fight for it. Had it passed, "we could have helped more people," one administration official said.

The failed bill included several items that Bush advocated Friday, including allowing the FHA to charge a risk premium, so that borrowers with good credit pay less to borrow and spottier borrowers more.

Q: Who needs the help the most?

A: States such as California and New York and areas such as South Florida and Las Vegas, where inflated real estate prices are falling. Modernization would increase the FHA's maximum loan levels from $362,000 to $417,000, which could help another 60,000 sub-prime borrowers. But this figure is still below California's median home price.

Q: What happens to high-price markets in the plan?

Many borrowers in markets that are seeing the biggest price corrections won't qualify for FHA help if they lack the required 3 percent of equity in their homes. Many homeowners in these markets now have new houses that are worth less than their outstanding loans.

"A lot of them will be underwater. That's the problem," said Ellen Harnick, senior policy counsel for the Center for Responsible Lending, an advocacy group in Durham, N.C.

Q: The president promised tax help to troubled borrowers. What's this about?

A: Bush supported a plan by Michigan Democratic Sen. Debbie Stabenow. She proposes not taxing the portion of a home loan forgiven by lenders when a troubled mortgage is being restructured. Most profit from a home sale isn't taxed, but when a loan goes bad, the portion the lender forgives and agrees not to collect is taxed as income.