The Federal Housing Finance Agency has approved a rule change that will let members of the Federal Home Loan banks temporarily use set-aside funds to refinance borrowers into low-cost Federal Housing Administration loans.
Members of the 12 Home Loan banks can use such funds to pay closing costs on FHA-approved loans and to reduce the principal balance of refinanced loans below the maximum 90% loan-to-value ratio set by the Hope for Homeowners program, the agency said Wednesday.
John von Seggern, the president of the Council of Federal Home Loan Banks, said in an interview that the new rule would free up at least $100 million to be used by the 8,100 banks and thrifts that are Home Loan bank members.
"I think people are taking lots of steps to help borrowers, and this is one step," he said.
Regulations already require each of the Home Loan banks to contribute 10% of their previous year's earnings, or at least $100 million a year, to assist member institutions in lending for affordable housing programs.
The bank members have until July 30, 2010, to use the set-aside funds to refinance low- and moderate-income borrowers' first mortgages on primary residences, the rule states. Before the change, the members could use the funds primarily to cover down payment assistance, closing costs, and counseling costs — not to refinance borrowers into low-cost loans.
The rule was proposed in April, three months after the Home Loan Bank of San Francisco began a pilot program to help refinance borrowers out of nontraditional and subprime mortgages into FHA loans.
The Hope for Homeowners program lets borrowers take out FHA-insured mortgages, relieving the owners of the old mortgage of a delinquent loan in exchange for writing its value down to 90% of the current home value and waiving any prepayment or late payment fees. The FHA in turn will pay off the old loan and give second lien holders a share in the possible future appreciation of the home's value.
On Wednesday the FHFA published an interim final rule amending its affordable housing program regulation in the Federal Register. The agency said that it will accept comments for 60 days after publication, and that those comments will be considered in a final rule.