House Speaker John Boehner and President Barack Obama

President Barack Obama provided more details on his plan to alleviate distressed homeowners in hopes of igniting the economy during a speech in Virginia yesterday, BusinessWeek reported.

As first proposed in his State of the Union address, Obama wants to make it easier for underwater homeowners to refinance their mortgages with low-interest, Federal Housing Administration-backed loans. To fund the plan, he is seeking congressional approval to tax large financial institutions, a measure Congress has twice rejected in the past two years. [more]

HUD Secretary Shaun DonovanControversy continues to swirl around the Federal Housing Administration, as lawmakers are accusing the agency of exacerbating its problems by downplaying the extent of its financial struggles.

The Wall Street Journal reported that lawmakers are concerned the agency will need a bailout, a belief that both University of Pennsylvania research and an independent audit confirmed in recent weeks, and want Department of Housing and Urban Development Secretary Shaun Donovan to come clean.

The independent audit found that projected losses on the $1.1 trillion in mortgages the FHA backs would leave just $2.6 billion in reserves, or 0.24 percent of the value of the agency’s insured mortgages, to cover losses over the next three decades. [more]

Federal Housing Administration officials denied reports showing the agency would face mounting losses and eventually require a taxpayer bailout, the Wall Street Journal reported, and said it continues to generate more revenue than expenses.

The FHA said it would have $2.6 billion in reserves even after taking into account expected losses on the $1.1 trillion of mortgages it guarantees, assuming housing prices fall 5.6 percent next year and then begin to rise. Once those prices rise, the FHA believes it will be able to replenish its reserve funds very quickly. Comments

Congress overcame Republican opposition to restore higher Federal Housing Administration mortgage loan limits last night, according to the Wall Street Journal, after the limit was lowered to pre-recession levels Oct. 1. The Senate and House each voted to pass the bill Thursday, even though Republicans have insisted that the government reduce its role in the housing market. Ceding to those wishes, the higher limits only apply to FHA-backed loans, and not those originated by federally owned Freddie Mac and Fannie Mae.

The FHA will once again allow buyers in expensive markets to take out loans of up to $729,750, while only requiring a down payment of 3.5 percent. [more]

As the Federal Housing Administration prepares to release its annual financial report next week, there’s growing concern that the agency could run out of money and seek a taxpayer bailout for the first time ever.

The Wall Street Journal cited a report by University of Pennsylvania professor Joseph Gyourko that estimated the agency stands to lose $50 billion in the coming years because of the larger role it has taken in mortgage loan originations since the housing bust. Gyourko said the FHA is underestimating the potential impact of prolonged high unemployment and fallout from the homebuyer’s tax credit in its internal calculations. Comments

Government efforts to make lenders refund customers over faulty mortgages may be preventing record low interest rates and slowing home sales as banks tighten their requirements for lending and scrutinize borrowers in order to avoid further payouts, Bloomberg News reported.

Lenders such as Quicken Loans and Vision Mortgage Capital are issuing mortgages only to those with very higher credit scores and are asking for more documents than required by the Federal Housing Administration and government-backed Fannie Mae and Freddie Mac.

“You’ve got to take measures now to protect yourself,” said John Johnson, CEO of Alabama- based MortgageAmerica. “I fear that [the market] will face a much longer recovery because of this.” [more]

The U.S. Department of Housing and Urban Development is immediately suspending Michael Primeau, former president of the defunct Melville, L.I.-based Lend America, from doing any business with HUD, after he admitted engaging in a wide-scale mortgage fraud scheme, according to HUD.

He pleaded guilty to charges he directed employees of Lend America, a former Federal Housing Administration-approved lender, to divert mortgage funds intended to pay off borrowers’ first mortgages at refinance closings in order to pay company operating expenses, a press release from HUD said. Primeau could not immediately be reached for comment. – Miranda Neubauer [more]

Bank of America should face fraud claims because its Countrywide unit submitted faulty data in claims for reimbursement of federally insured mortgages, according to an audit by the Department of Housing and Urban Development, Bloomberg News reported.

“Countrywide did not properly verify, analyze, or support borrowers’ employment and income, source of funds to close, liabilities and credit information,” a HUD regional inspector general wrote in the audit. “This noncompliance occurred because Countrywide’s underwriters did not exercise due diligence in underwriting the loans.” HUD runs the Federal Housing Administration, which insures mortgages on loans to borrowers who can’t find traditional financing, such as those with low income.  Comments

Picture a mortgage program that seems to defy many of the
lessons of the housing bust:

– 91 percent of its borrowers make zero down payments.
– Loan amounts go well into the jumbo range — to $1 million
and sometimes above, even with little or nothing down.
– Credit standards are flexible and generous. Underwriting
rules encourage loan officers to look for ways to approve
applications rather than to reject them.

– Mortgage originations are up — almost triple what they were
just three years ago and are on track this year to exceed 2010′s
volume. The rest of the loan industry, by contrast, is down by
anywhere from 25 percent to 30 percent. [more]

How big a deal is the upcoming cutback in mortgage limits for Fannie Mae, Freddie Mac and the Federal
Housing Administration? Will buyers and sellers who depend on jumbo-sized loans find themselves in a
financing squeeze after Oct. 1, when the limits plunge in key markets around the country?
Housing and realty lobbies are pushing hard on Capitol Hill for a continuation of the $729,750 high-cost
area maximum, but one industry is delighted by the prospect and is gearing up to fill the gap.
From small community banks to megabanks, the message is the same: Bring on the switch to lower
limits. [more]