House Foreclosures: Senate Bills And Foreclosures

After sitting on the fence for months while the foreclosure tsunami raged, the Senate has at last come forward with two bills on 14th December of major significance. It may help some boiling in the foreclosure cauldron.

The FHA Modernization Act that had been stalled for a long time will reduce the amount of down payments and raise the limits of mortgage amounts that can be forwarded by the Federal Housing Administration (insured loans). This bill was passed by an overwhelming majority of 93-1. The Senators also gave their nod to Mortgage Forgiveness Debt Relief Act that would do away with the tax being imposed on the amount of money borrowers saved by coming to an understanding with the lender. Hitherto this was considered as taxable income. This anomaly will be removed for three years.

The House has already passed both the measures. A conference committee will resolve the difference between the Senate and House bills before getting the signature of the President.

The FHA Modernization bill will be of great help to house owners who are stuck with the sub-prime mortgages that force the borrower to pay exorbitant interest rates. Invariably they cannot afford it and foreclosures follow – leading to eviction or bankruptcy. Another important point is that a wide range of consumers in the high cost regions of the country like California, the Northeast and Mid-Atlantic States will be benefited.

By the Senate bill, the limits of the loan amount of the FHA will be raised to $417,000 – bringing the ceiling to be at par with Fannie Mae and Freddie Mac. The limits to median house prices would be tied and the FHA loans amounting to more than$700,000 would now be able to penetrate expensive markets like San Francisco.

One feature of the House Bill is that applicants for FHA loans will be able to do so without any down payments. Till now 3% had to be paid. In the Senate’s version a down payment of at least 1.5% will have to be made. The House bill will allow the FHA to vary the insurance premiums in accordance with the risk status of the borrower. Those who make nil or minimum down payments will have to pay a higher premium. The Senate Bill would freeze for a year pricing system based on risks developed by FHA and set to be launched from 1st January.

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