House and Senate negotiators have reached an agreement on loan limits, and it appears that the maximum amount for the Government Sponsored Enterprise (GSE)Fannie Mae, Freddie Mac, and Federal Housing Administration FHA loans will be $625,000.

Negotiations on a massive housing bill are getting serious, with the House of Representatives scheduled to vote on the legislation tomorrow.

In markets where housing prices exceed the $417,000 conforming loan limit, the maximum loan amount of Fannie Mae and Freddie Mac loans would be determined by multiplying the median home price by 115%, up to a maximum of $625,000, sources say.

The same holds true for FHA loans, except that the multiplier kicks in at $271,050, or 65% of the conforming loan limit. If the median home price is $300,000, the maximum FHA loan amount in that area would be $345,000 ($300,000 x 115%).

House Financial Services Committee Chairman Barney Fran, D-Mass., told The Washington Post that the House has agreed to accept Senate provisions that ban seller funded downpayment assistance on FHA loans and impose a 12-month moratorium on the charging of risk-based premiums by the FHA.

It appears that HUD is trying to pilot a FHA Foreclosure Prevention but as simple as it appears, why has it taken so long?

The Department of Housing and Urban Development is starting a pilot program in Detroit to purchase Federal Housing Administration single family loans from lenders after all loss mitigation options have been exhausted and foreclosure is the next step.

“Under this program, we will create means for lenders or investors to sell their non-performing mortgages before foreclosure to HUD and a joint venture partner who will be responsible for servicing the loan and helping families stay in their homes,” HUD Secretary Steve Preston said.

HUD expects to purchase the FHA loans at a “significant discount” so the joint venture partner can modify the loans and make it more affordable for the homeowners.

Congress should complete action on a Federal Housing Administration modernization bill and leave it to the Bush administration to find ways to help borrowers with “underwater” mortgages, Treasury Secretary Henry Paulson said Wednesday in a major policy speech.

“We do not need a system wide solution for the vast majority of loans where the homeowner has negative equity,” Secretary Paulson told the U.S. Chamber of Commerce. The secretary’s comments show that the Bush administration wants to head off passage of a Democratic proposal that would encourage lenders to write down the principal amount of underwater mortgages so borrowers could refinance into FHA-insured mortgages.

The legislation would authorize $300 billion in FHA loan guarantees. The Bush administration would prefer that the FHA take a more limited approach and use its existing authority to address the problem. “Secretary Alphonso Jackson is examining the potential for FHA to be a solution for those borrowers,” Mr. Paulson said.

The FHA modernization bill, which is stalled in conference, would allow the agency to insure 40-year mortgages, which would stretch out the payments and make them more affordable.

Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) today released the maximum conforming loan limits that will be in effect through year-end as a result of The Economic Stimulus Act of 2008. That legislation permits Fannie Mae and Freddie Mac to raise their conforming loan limits in certain high-cost areas. The new jumbo limits are a function of median home prices as estimated by the U.S. Department of Housing And Urban Development (HUD).

The maximum for temporary jumbo conforming loan limits, which apply to loans originated in the period between July 1, 2007 and December 31, 2008, are as high as $729,750 for one-unit homes in the continental United States. Two, three and four-unit homes have higher limits as well. Alaska, Hawaii, Guam and the Virgin Islands also have higher maximum limits.

There are two data sources reflecting the new maximum limits. The first, on OFHEO’s Web site, available at
www.ofheo.gov/media/hpi/AREA_LIST.pdf, reports only those counties and Metropolitan Statistical Areas (MSAs) that are affected by the new loan limits. Data for all areas are available on the HUD Web site at https://entp.hud.gov/idapp/html/hicostlook.cfm.

Seventy-one Metropolitan and Micropolitan Statistical Areas are affected including 224 counties and cities not in counties. In addition, there are 21 counties outside of Metropolitan or Micropolitan areas that show increases, plus Guam and four municipalities in the Marianas Islands. The newly increased limits range from $417,500 in Greeley, Colorado to the highest of $793,750 in Honolulu, Hawaii.

In support of HUD’s calculation of county median home prices, OFHEO provided HUD rural house price indexes for 48 states. HUD used these indexes, which reflect price changes for homes outside of Metropolitan Statistical Areas, to estimate median prices in counties for which sales price data were sparse. OFHEO has made these indexes available at: http://www.ofheo.gov/hpi_download.aspx.

Bush Praises Subprime Mortgage Strategy

President Bush says it is “going to take a while to work through this mortgage bubble,” but that his administration does have a strategy for helping subprime borrowers refinance or restructure their mortgages.

Bush said in a speech on the economy that the Treasury Department has worked with mortgage servicers so borrowers don’t “get pinched as their interest rates reset”. He also noted that the Federal Housing Administration is helping to refinance subprime borrowers and could do more if Congress passes an FHA modernization bill. (The Senate just passed such a bill, which now has to be reconciled with the House version).

Former Federal Reserve Board Chairman Alan Greenspan has suggested that the federal government could provide cash assistance for distressed homeowners who can’t afford their mortgage payments.

Mr. Bush stressed in his speech that he is against bailouts for lenders, speculators, and people who bought a house they couldn’t afford. “But we can mitigate some of the issues, and I’m concerned about people who are credit worthy enough to live in their homes not being able to deal with these resets,” he said.

Senate Passes FHA Reform

The Senate has passed a Federal Housing Administration (FHA) modernization bill by a 93-1 vote that raises the FHA loan limit to $417,000 in high cost areas and lowers the minimum down payment requirement from 3.0% to 1.5%.

During the debate, Senator Tom Coburn, withdrew his amendment to restore a cap on the number of reverse mortgages the FHA can insure. An amendment to place a moratorium on the implementation of risk based pricing at the FHA was agreed to by unanimous consent.

The moratorium is a blow to the Bush administration, which contends that risk based pricing is critical to the health of the FHA mortgage insurance fund.

Meanwhile, mortgage lenders say they expect the increase in the FHA loan limits to lead to an explosion in FHA originations.

The House passed an FHA bill earlier this year, which means House and Senate banking committee leaders will have to meet in conference to agree on the final provisions of the FHA bill. A House-Senate conference is not expected until early next year.

FHASecure Will Refinance Interest Only Mortgages and Some Option ARMs

The Federal Housing Administration is willing to refinance certain delinquent borrowers with interest-only and payment-option adjustable rate mortgage under the FHASecure program, which is designed to rescue subprime borrowers.

However, the delinquency on an IO or option ARM must be the result of an interest rate reset or the full amortization of the mortgage, according to the Department of Housing and Urban Development.

Shortly after HUD launched FHASecure on September 5, lenders began asking whether IO and option ARMs would be eligible.

Mortgage industry consultant Bud Carter pointed out the revision. “FHA will refinance almost any loan, except a conventional fixed rate mortgage that is delinquent,” he said. Mr. Carter is with Potomac Partners in Washington.