SAN FRANCISCO — Federal Housing Commissioner Brian Montgomery urged lenders to take part in the Hope for Homeowners program, though he acknowledged some problems.
"Explaining this to consumers, trying to explain the shared equity and appreciation, and training your staff is difficult," Mr. Montgomery said Monday at the Mortgage Bankers Association's annual convention.
So far 100 lenders have signed up for the program, and the Federal Housing Administration is fielding roughly 1,000 calls a day from interested borrowers, he said.
"Please look into using this new product," Mr. Montgomery said. "The demand is not going to go away anytime soon."
Hope for Homeowners lets lenders refinance delinquent borrowers, provided the holder of the existing loan writes it down to 90% of the current home value and waives any prepayment or late payment fees. The FHA insures the new loan, and second lien holders get a share of the home's future appreciation.
The program was created by legislation passed in July.
Several lenders in the audience said they were having problems qualifying borrowers for the program, largely because their FICO scores were below the typical 580 threshold that loan buyers would accept. When questioned by several lenders about how difficult it has been to explain the program to borrowers, Mr. Montgomery acknowledged that many homeowners would face a significant reduction in their equity while benefiting from only half of a home's appreciation when the housing market recovers. "It potentially can become a very expensive program," he said.
Also at the conference, the chief executives of Fannie Mae and Freddie Mac again indicated that since being taken over by the government, their priorities have shifted away from the bottom line in favor of serving the housing markets.
Herbert Allison, the new CEO at Fannie, said it will focus for now on the minimum returns necessary to ensure its safety and soundness. "Once we do that, we will review the pricing necessary to grow the company."
David Moffett, Mr. Allison's counterpart at Freddie, told the MBA that pricing at his company is being reviewed "across the board," with the intent of adjusting "for the 30-year risk we are taking."
The CEOs participated in the convention's opening panel discussion along with James Lockhart, the director of the Federal Housing Finance Agency. The panel discussion, which was disrupted briefly when a protestor walked on stage, interrupted the former CNBC analyst Ron Insana, the panel's moderator, and asked the speakers to address the issue of foreclosures.
The challenger was quickly ushered off the stage, but the panel spoke to his question. Mr. Lockhart told the government-sponsored enterprises they "have to be much more proactive" in that area. (There were about 100 protestors outside the convention.)
Mr. Lockhart told the conference that the actions taken over the last three months by the Bush administration and Congress are "effectively a guarantee" that Fannie and Freddie are backed by the full faith and credit of the federal government. "My hope is that as the markets settle down, investors will recognize their strength and rates will start to move down again," he said.
FHA also plans to tighten its eligibility requirements for lenders and mortgage brokers, Mr. Montgomery said.
The agency plans to raise its minimum net worth requirements for FHA-approved lenders to $1 million from the current $250,000, and to $73,500 for brokers from the current $63,000, he said. The FHA is hoping to have the new standards in place by Jan. 20, when a new administration takes over, Mr. Montgomery said. (Fannie and the Government National Mortgage Association recently announced similar changes.)
He said he is trying to get an extension for another FHA program designed to help troubled borrowers, FHASecure, which is set to expire at yearend. FHASecure was a centerpiece of the Bush administration's plan last year to stem the tide of foreclosures, but ended up helping only a few thousand borrowers because of stringent eligibility requirements.