House Financial Services Committee Chairman Barney Frank announced new legislation Thursday that would increase the involvement of the Federal Housing Administration in the current crisis to help fight the rise of foreclosures. The legislation is still in draft form and may change before any formal proposals.
Program would permit FHA to provide up to $300 Billion in new guarantees that would help to refinance at-risk borrowers into viable mortgages in a move that could potentially refinance between 1 and 2 million loans. Eligibility is for primary residences whose loans were made or refinanced between January 1, 2005 to July 1, 2007. It would also remove any incentive for borrowers to purposely default and borrower would need to have had a mortgage debt-to-income ratio of no less that 40 percent as of March 1, 2008.
There are many more details that you can see at the committee site here, but we’d note that this is perhaps the first real government intervention legislation.
This is a partial bailout and many free market pundits will accuse it of being a total handout and a government put. Frankly, if it saves a large portion of the resets and keeps people from walking away from their homes we’d accept it as an expensive cost of doing business and paying for a half decade of financial sins and shenanigans.
Add this together with S&P calling "the end in sight" over subprime CDO and ABS writedowns at large banks, and all of a sudden you have a rally.
Jon C. Ogg
March 13, 2008